Do foreign and domestic firms behave any different during economic slowdowns?

Abstract

The global crisis has called to further reflection on the role of multinationals in host economies during crisis. The evidence on this matter is scarce and no definite conclusions were achieved. Using panel data analysis, this paper examines the link between foreign ownership, firm employment and turnover growth over twenty years and during economic downturns in particular. We analyse the determinants of firm employment and turnover growth and investigate whether there are significant differences in both variables among domestic and foreign firms when controlling for firm and industry specificities. Additionally we assess if the foreignness effect alters during economic downturns. After controlling for several firm and industry characteristics, we find no significant differences between domestic and foreign firms in what concerns employment growth. However, our results suggest that foreign ownership may affect positively firms' sales turnover growth during recessions.

Employment and SMEs during crises

“…Regarding the effects of foreign ownership, the results are not however unanimous (e.g., Varum and Rocha 2010;Özler and Taymaz 2004;Girma and Gong 2008;Karlsson et al 2009). …”

Economic slowdowns, hazard rates and foreign ownership

“…The literature on firm survival has shown the detrimental impact of macroeconomic instability upon firms' survival and their dynamics (e.g., Audretsch & Acs, 1994;Bhattacharjee, Higson, Holly, & Kattuman, 2009;Geroski, Mata, & Portugal, 2010;Varum & Rocha, 2011. However, particular groups of firms may be better able to surpass the difficulties of a crisis.…”

“…Studies about the importance of foreign ownership during crises are relatively scarce, the notable exceptions being the studies by Á lvarez and Gö rg (2009), Lee and Makhija (2009) and Varum and Rocha (2011). Hence, in this paper we use longitudinal firm-level data for a large time span to assess, first, whether foreign ownership contributes to differentiating the incidence of firm exit during crises, controlling for other determinants that may affect the exit risk of firms.…”

“…Foreign multinationals may have better conditions to face the crises owing to their multinationality advantages or they may resist more due to the sunk costs associated with their investment (Chung, Lu, & Beamish, 2008;Desai, Foley, & Forbes, 2004;Ghosal, 2010). Studies about the importance of foreign ownership during crises are relatively scarce, the notable exceptions being the studies by Á lvarez and Gö rg (2009), Lee and Makhija (2009) and Varum and Rocha (2011). Hence, in this paper we use longitudinal firm-level data for a large time span to assess, first, whether foreign ownership contributes to differentiating the incidence of firm exit during crises, controlling for other determinants that may affect the exit risk of firms.…”

“…For the Portuguese case we add to the previous important contributions of Portugal (2002, 2004), by enlarging the time span of their study and focusing on the potential effect of foreign ownership during (different) downturn periods. Compared to Varum and Rocha (2011), who examined the link between foreign ownership, firm employment and turnover growth and crises, the present study investigates firms' dynamics in terms of firm survival, using discrete time duration models. The analysis also adds to Varum and Rocha (2012) by exploring the foreignness effect upon firm survival under crises, differentiating between two distinct crisis contexts.…”