Impact of foreign equity holding on firm performance: a study of selected Indian NSE companies

What the paper says

Purpose This study looks into how foreign equity holdings affect a company's performance, which is an important topic given the rise in cross-border capital flows and globalization. The study looks at how key performance metrics, including profitability, efficiency and market valuation of businesses across different industries, are affected by the presence of foreign investors. Design/methodology/approach To separate the impact of foreign ownership from other confounding factors, the analysis uses rigorous econometric models and a large dataset of companies with different levels of foreign equity participation. Therefore, during a ten-year period from 2009 to 2018, this article aims to analyse the relationship between foreign equity holding and corporate performance of Indian NSE companies. Secondary sources are used in the data collection process. The Centre for Monitoring Indian Economy's (CMIE) electronic database “PROWESS” provided the pertinent data needed for the current study. There is a sample of 286 NSE chosen. Panel regression analysis has been used to examine the data. Findings The results imply that having foreign equity has a typically advantageous effect on the performance of the company. Higher foreign ownership percentages are associated with better financial measures for the company, such as return on assets (ROA). The findings suggest that foreign equity holding has a generally negative impact on firm performance. Firms with higher levels of foreign ownership exhibit superior financial metrics, including higher return on assets (ROA), compared to their counterparts with lower or no foreign equity participation. This improvement is attributed to several factors, including enhanced corporate governance practices, access to international networks and expertise, and the infusion of capital which supports growth and innovation. However, the study also identifies potential downsides associated with foreign equity holdings, such as increased market volatility and potential conflicts of interest between foreign and domestic stakeholders. These findings highlight the necessity for a balanced approach in policy formulation, ensuring that the benefits of foreign investment are maximized while mitigating associated risks. Originality/value Overall, this research contributes to the literature on international finance and corporate governance, providing empirical evidence on the role of foreign equity in enhancing firm performance. The insights gained from this study are valuable for policymakers, investors, and corporate managers aiming to optimize the benefits of foreign investment in the globalized economy.