Foreign Ownership and Profitability: Property Rights, Control, and the Performance of Firms in Indian Industry

TLDR

Indian institutional structure defines property rights at different ownership levels, shaping how foreign ownership categories are determined. The study examines how foreign ownership affects firm performance in India. Foreign ownership is classified by the level of control exercised, and firm performance is assessed via return on sales and return on assets. After controlling for firm and environmental factors, only firms with at least 51% ownership that grants clear control to foreign owners show superior performance.

Abstract

This study examines the influence of foreign ownership on the performance of firms operating in India. Foreign ownership is categorized according to the control exercisable at different levels of ownership. These categories are, in turn, determined by the institutional structure of the Indian environment that helps define the property rights accruing at different levels of ownership. Firms' performance is measured as return on sales and return on assets. The results show that, after controlling for a variety of firm and environment‐specific factors, only when property rights devolve to foreign owners, at ownership levels providing unambiguous control at 51 percent, do firms in which there is foreign ownership display relatively superior performance.