Effect of Foreign Ownership on Firm Performance and Shareholder Value: Evidence from India

This study investigates the effect of equity ownership by foreign promoters on firm performance and shareholder value in Indian firms. Ownership is categorized into 3 levels: 0-25%, 25%-50%, and 50% or above. My prediction is that the performance of an Indian firm increases due to addition of a foreign partner. The change in performance varies according to the foreign partner’s stake in the Indian company. Consistent with my prediction, the results show that the return on sales increase with an increase in foreign stake. In addition, the results show that foreign partners tend to improve the business model by controlling administration costs, and by spending more on research and development. Thereby, we see an increase in intangible assets in companies with foreign ownership of greater than 50%. The results also show an increasing trend in return on sales (year over year) in companies with foreign partners. Finally, the results indicate a significant decrease in cost of goods sold due to foreign direct investment as the foreign partners adopted better technology and automation in their processes