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How Does Ownership Type Influence International Diversification-Firm Performance Relationship?

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Services Marketing Issues in Emerging Economies

Abstract

International diversification and its effect on the firm remains a key theme in business literature. Yet how international diversification-firm performance (IDP) relationship is influenced by firms’ ownership has not been adequately examined. This represents an important gap in the literature as owners differ significantly in motivations, capabilities, and governing styles. Drawing on the resource-based view of the firm, agency theory, and institutional perspective, this study examines how ownership type impacts IDP relationship of a sample of 1074 publicly-listed Indian firms. Results suggest that family- and domestic corporate ownership positively moderates IDP relationship but foreign corporate ownership results in negative moderation. Results further suggest that domestic- and foreign financial institutional ownership imparts no statistically significant influence on IDP relationship. These findings are new to the literature. In conclusion, we discuss our study’s implications and limitations and provide directions for future research.

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Notes

  1. 1.

    In the extant literature terms such as international expansion, international diversification, degree of internationalization, multinationality, and geographic diversification have been used to refer to the same construct (Hitt et al., 2006, p. 832; Kirca et al., 2011, p. 48).

  2. 2.

    In the literature there exists a significant discussion on the impact of family ownership and control on the firm. There is also a sizeable volume of scholarship on the dynamics of family firms. We draw from this voluminous literature only what is essential for the current study.

  3. 3.

    We tested for curvilinear relationship by entering in the analysis squared ID. The resulting coefficient was statistically non-significant. We, therefore, ruled out evidence of the curvilinear relationship between ID and firm performance.

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Correspondence to Saptarshi Purakayastha .

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Appendix: Definition and Sources of Study Variables

Appendix: Definition and Sources of Study Variables

Variables

Definition

Sources

Dependent variable

Firm performance

ROA = Profit before depreciation, interest, and tax over total assets

Prowess

Independent variable

International diversification (ID)

Foreign sales to total sales

Prowess, annual report of firms, business magazines, and websites

Family ownership (FAM)

Proportion of shareholding by the founding family

Prowess

Domestic corporate ownership (DOMC)

Proportion of shareholding by domestic non-financial corporations

Prowess

Foreign corporate ownership (FORC)

Proportion of shareholding by foreign non-financial corporations

Prowess

Domestic financial institutions (DOMI)

Proportion of shareholding by domestic financial corporations

Prowess

Foreign financial Institutional ownership (FORI)

Proportion of shareholding by foreign financial corporations

Prowess

Instrumental variables

PSIN

Proportion of foreign sales to total sales generated by firms in a particular industry

Prowess

PNIN

Proportion of number of firms that have foreign sales to total firms in a particular industry

Prowess

RECESSION

Number of quarters in a given year when India’s GDP contracted

RBI website and Country Report, Economist Intelligence Unit

BSE 500

Dummy variable that takes the value of one if the firm is listed in S&P BSE 500 Index, zero otherwise

Prowess

GDR

Dummy variable that takes the value of one if the firm has a global depository receipt listed on a foreign stock exchange, zero otherwise

Prowess

Control variables

Firm Age (AGE)

Number of years from the date of the incorporation of the firm

Prowess

Firm Size (SIZE)

Natural logarithm of sales

Prowess

Firm Leverage (LEVERAGE)

Ratio of debt to total assets

Prowess

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Purakayastha, S., Lahiri, S. (2020). How Does Ownership Type Influence International Diversification-Firm Performance Relationship?. In: Adhikari, A. (eds) Services Marketing Issues in Emerging Economies. Springer, Singapore. https://doi.org/10.1007/978-981-15-8787-0_8

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