Abstract:
The internalization theory, which provides an economic rationale for the existence of foreignowned firms, suggests that foreign-owned firms should benefit from the transfer of the firm specific assets owned by the parent firms and display better corporate performance than domestic firms. In this study, I examine whether foreign ownership has any affect on the productivity and financial performance of firms in Turkey and whether different levels of foreign ownership have differing impacts on corporate performance. Using a panel of 292 firms over the period 2004-2008, I find that firms that are majority foreign-owned and wholly foreign-owned have higher labor productivity than domestically-owned firms. The effect of being a wholly foreign owned enterprise is higher than the effect of majority foreign ownership. Furthermore, although majority foreign-owned and wholly foreign-owned firms have higher capital productivity than domestically-owned firms, there is no effect of foreign ownership on pretax profit margin and return on equity. Hence, we can say that majority foreign ownership and being a wholly foreign owned enterprise have positive effects on performance measures based on value added creation rather than profit. Because the duration of foreign ownership does not change the form of the relationship between foreign ownership variables and productivity variables, I suggest that the transfer of the firm specific assets to the majority foreign-owned firms and wholly foreign owned enterprises is realized in a certain period of time after the acquisition of shares by the foreign owners and the establishment of FOFs.
