Title: The Impact of Foreign Ownership on Financial Efficiency: Evidence from Emerging Market Listed Companies
Authors: Hong Ngoc NGUYEN
Volume: 9
Issue: 7
Pages: 128-139
Publication Date: 2025/07/28
Abstract:
This study investigates the impact of foreign ownership on financial efficiency in emerging market listed companies using a comprehensive panel dataset spanning multiple countries and time periods. Employing dynamic panel data methodology with system GMM estimation to address endogeneity concerns, the research examines how foreign shareholding influences firm-level financial performance metrics including return on assets, return on equity, and operational efficiency ratios. The empirical analysis reveals a significant positive relationship between foreign ownership and financial efficiency, with the effect being non-linear and subject to threshold levels around 45-51 per cent. Foreign institutional investors demonstrate stronger positive impacts compared to foreign corporate investors, particularly in markets with weaker institutional environments. The study finds that foreign ownership enhances efficiency through improved corporate governance practices, technology transfer, and superior monitoring mechanisms, supporting both agency theory and resource-based perspectives. Cross-sectional analysis indicates that the benefits are more pronounced for larger firms and those in manufacturing sectors, whilst the effects vary significantly across different emerging market regions. These findings contribute to the international finance literature by providing robust evidence on the mechanisms through which foreign investment improves corporate financial performance in developing economies. The results have important implications for policymakers considering foreign investment liberalisation and for firms seeking to optimise their ownership structures in emerging markets.