The impact of foreign capital on profitability: the case of Portuguese manufacturing SMEs. (28th October 2020)

• Record Type: Journal Article
• Authors: Pacheco, Luís
• Is Part Of: International journal of globalisation and small business. Volume 11:Number 4(2019)
• Page Start: 391
• Page End: 412
• Publication Date: 2020-10-28
• Subjects: ownership structure -- profitability -- small and medium enterprises -- SMEs -- manufacturing sector -- foreign investment; Small business -- Periodicals; Globalization -- Periodicals; 338.642
• Languages: English
• ISSNs: 1479-3059

Abstract

The objective of this paper is to examine the relationship between the firms' ownership and control structure, in particular the presence of foreign capital, and its profitability. The relation between profitability and ownership and control structure is a topic less studied in the literature. This paper uses a balanced panel data of 5.722 firms for the period 2010-2017, researching if the presence of foreign capital influences financial performance. Possible nonlinear effects or moderating and interaction roles between variables are also tested. Our results evidence that, despite foreign firms' higher levels of profitability, the degree of foreign ownership and institutional difference generally showed a non-significant relation with profitability. Nevertheless, there seems to exists a nonlinear relation between the development level of the country of origin of the share capital and profitability, with the results indicating that firms with share capital originated from more advanced countries attain a higher financial performance.