Foreign Ownership and Profitability: Property Rights, Strategic Control and Corporate Performance in Indian Industry

Abstract

This study examines the influence of foreign ownership on the performance of fmtis operating in India. Foreign ownership is categorized according to the control exercisable at different levels of ownership. These categories are, in turn, determined by the institutional structure of the Indian environment which helps define define the property rights accruing at different levels of ownership. Firms' performance is measured as return on sales and return on assets. The results show that, after controlling for a variety of fin-n and environment-specific factors, only when property rights devolve to foreign owners, at ownership levels providing unambiguous control at 51 percent, do firms in which there is foreign ownership display relatively superior performance. Implications for managers of foreign firms contemplating investments, either de-novo or augmenting already-existing stakes, in India and for policy are also discussed.