Finance Seminar（2014-21）

Topic: Benefits of Foreign Ownership: Evidence from Foreign Direct Investment in China

Speaker: Jian Wang, Federal Reserve Bank of Dallas

Time: Wednesday, 2 July, 10:00-11:30

Location: Room 217,Guanghua Building 2

Abstract: Previous studies document performance gains after a firm being acquired by foreigners. Would a firm have experienced similar gains had it been acquired by a domestic firm? The answer to this question is crucial for understanding the advantages of foreign direct investment (FDI) relative to domestic capital. This paper empirically studies the effect of foreign acquisitions on target firms' performance using China's firm-level data. Unlike previous studies, our study chooses domestic-acquired firms as the control group to investigate the effect of foreign acquisition. We find that foreign ownership does not induce significant gains in target firms' productivity relative to domestic acquisitions. A strong and robust finding is that foreign ownership significantly improves target firms' financial conditions and exports. Foreign acquisition is also found to improve output, employment and income for target firms relative to domestic-acquired firms. These findings highlight the financial channels through which FDI benefits income and economic growth of host countries.