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Outward FDI from India and its impact on the performance of firms in the home country

Outward FDI from India and its impact on the performance of firms in the home country PurposeThis paper aims to analyse the change in performance of parent Indian firms (home effects) who have invested in overseas locations in recent times.Design/methodology/approachDifference-in-difference (DiD) estimate of home effects using farm level data.FindingsHome effects of Indian outward foreign direct investment (OFDI), in general, are insignificant. However, in the case of OFDI directed only to non-offshore financial centre (OFC), some firms did enjoy beneficial home effects with respect to turnover, current ratio and leverage ratio. In the case of OFDI directed purely to OFC locations, some of the parameters exhibited negative home effects. In the subsample of Indian OFDI directed to combination of OFC and non-OFC locations, the results show positive home effects with respect to export, operating profit margin and forex earnings; however, impact on turnover seems to be negative for all the quartiles.Research limitations/implicationsEstimation of home effects using data over longer horizon may yield robust outcome.Practical implicationsThese results make a strong case to draw a distinction among OFDIs to OFC, non-OFC and combination of OFC and non-OFC locations in studying the beneficial home effects of OFDI.Originality/valueTo the authors’ knowledge, this is the first paper which estimates home effects of different groups of Indian firms (based on their investment locations and size class) using difference-in-difference estimate. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Outward FDI from India and its impact on the performance of firms in the home country

Journal of Asia Business Studies , Volume 13 (1): 32 – Jan 7, 2019

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1558-7894
DOI
10.1108/JABS-05-2017-0063
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to analyse the change in performance of parent Indian firms (home effects) who have invested in overseas locations in recent times.Design/methodology/approachDifference-in-difference (DiD) estimate of home effects using farm level data.FindingsHome effects of Indian outward foreign direct investment (OFDI), in general, are insignificant. However, in the case of OFDI directed only to non-offshore financial centre (OFC), some firms did enjoy beneficial home effects with respect to turnover, current ratio and leverage ratio. In the case of OFDI directed purely to OFC locations, some of the parameters exhibited negative home effects. In the subsample of Indian OFDI directed to combination of OFC and non-OFC locations, the results show positive home effects with respect to export, operating profit margin and forex earnings; however, impact on turnover seems to be negative for all the quartiles.Research limitations/implicationsEstimation of home effects using data over longer horizon may yield robust outcome.Practical implicationsThese results make a strong case to draw a distinction among OFDIs to OFC, non-OFC and combination of OFC and non-OFC locations in studying the beneficial home effects of OFDI.Originality/valueTo the authors’ knowledge, this is the first paper which estimates home effects of different groups of Indian firms (based on their investment locations and size class) using difference-in-difference estimate.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Jan 7, 2019

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