Do Sectoral and Locational Factors of Foreign Direct Investment from Emerging Countries Matter for Firm Performance? The Case of Korean Firms’ FDI in China’s Service Sector
The Political Economy of Chinese Finance
ISBN: 978-1-78560-958-9, eISBN: 978-1-78560-957-2
Publication date: 12 November 2016
Abstract
Purpose
This paper examines the statistical relationship between outbound Foreign Direct Investment (FDI) and firm performance. We focus on how the link is influenced by sector-specific differences and geographical factors.
Methodology
We compile a time-series cross-sectional dataset that includes financial variables and FDI activities of South Korean firms between 2005 and 2008 from the DART, a financial statement database. Then, we fit our data against the linear regression models that we designed to identify FDI-performance relationship in different subsamples. Our measurement of firm performance is specifically constructed to reflect excess returns in the stock market.
Findings
We found compelling differences in the degree of FDI-performance relationships across different industries. In manufacturing sectors, the flow of direct investment is more heavily associated with firm performances than accumulated stock of direct investment, and vice versa in the service sector. The impact of China factors toward performance aspects of Korea’s outbound FDI which also differs across sectors as well.
Value
Although there have been extensive research efforts on this subject in general, our paper addresses an increasingly significant class of FDIs that have received relatively less attention, that is, direct investment originating from developing economies. Also, our analysis adds a sectoral dimension that contributes to more comprehensive understanding of a multinational-performance relationship.
Keywords
Acknowledgements
Acknowledgments
This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2013S1A2A1A01034104). The views expressed in this paper are solely those of the authors and not necessarily those of the U.S. Bureau of Economic Analysis or the U.S. Department of Commerce.
Citation
Lee, S.-B., Kotabe, M., Heo, D., Kang, B.J. and Yoon, A.H. (2016), "Do Sectoral and Locational Factors of Foreign Direct Investment from Emerging Countries Matter for Firm Performance? The Case of Korean Firms’ FDI in China’s Service Sector", The Political Economy of Chinese Finance (International Finance Review, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 393-411. https://doi.org/10.1108/S1569-376720160000017020
Publisher
:Emerald Group Publishing Limited
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