Foreign Ownership and Financial Performance: Evidence from Private Subsidiaries

34 Pages Posted: 13 Feb 2018

See all articles by Belen Gill-de-Albornoz

Belen Gill-de-Albornoz

Jaume I University - Department of Finance and Accounting

José António Cardoso Moreira

cef.up / Faculdade de Economia / Universidade do Porto

Simona Rusanescu

University of Groningen - Faculty of Economics and Business, Department of Accounting and Auditing

Date Written: October 2017

Abstract

We study how foreign ownership relates to financial performance in a sample of large privately held Spanish subsidiaries. We find that, although foreign group subsidiaries report higher sales turnover than subsidiaries of local groups, they lose their sales advantage at the operating income level. Additionally, the empirical evidence reveals that the cause for this loss has to do with the higher wages that foreign group subsidiaries allegedly pay to their employees, since, when the wages expense is excluded from the profit-related measures and CFOs, firms under foreign control have higher financial performance than those controlled by local groups. We also test whether the productivity level in the parent company’s home country, compared to that in Spain, has an effect on the relation investigated. Results suggest that when FDI comes from a country with productivity levels higher than Spain the negative association between foreign shareholding and firm performance is mitigated.

Keywords: financial performance, foreign ownership, private companies, subsidiaries

JEL Classification: F23, M41, M48

Suggested Citation

Gill de Albornoz Noguer, Belen and Cardoso Moreira, José António and Rusanescu, Simona, Foreign Ownership and Financial Performance: Evidence from Private Subsidiaries (October 2017). Available at SSRN: https://ssrn.com/abstract=3116275 or http://dx.doi.org/10.2139/ssrn.3116275

Belen Gill de Albornoz Noguer

Jaume I University - Department of Finance and Accounting ( email )

Campus del Riu Sec
12081 Castello de la Plana
Spain

HOME PAGE: http://www.uji.es

José António Cardoso Moreira

cef.up / Faculdade de Economia / Universidade do Porto ( email )

Rua Dr. Roberto Frias
4200-464 Porto
Portugal

Simona Rusanescu (Contact Author)

University of Groningen - Faculty of Economics and Business, Department of Accounting and Auditing ( email )

Nettelbosje 2
Groningen, Groningen 9747 AE
Netherlands

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