Home Firm Performance After Foreign Investments and Divestitures

Abstract

'Being international' has nearly become an undisputed aim for firms in a globalized world. Several papers find a positive relationship between foreign direct investment (FDI) and the home performance of firms. In this paper we address the 'FDI - export' relationship to better understand this pattern. Furthermore, by presenting first results on firm’s post-divestiture employment growth at home we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets.

We apply a propensity score matching technique in combination with a difference indifference estimator to analyze the performance dynamics of French firms that invested abroad or carried out foreign divestitures during the period 2000-2007. FDI has on average a positive home firm effect in terms of export share, operating turnover and employment. Industry differences reveal that firms in high-tech industries experience a strong increase in their home performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.

Keywords: Foreign markets, entry and exit, firm performance

JEL Classification: F21, F23, D21, L25