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Optimal Ownership and Firm Performance: An Analysis of China’s FDI Liberalization

Peter Eppinger¹; Hong Ma²

¹ University of Oldenburg and CESifo · ² Tsinghua University

Abstract Seminal theories of the firm posit that firm ownership is allocated to minimize contractual inefficiencies. Yet, it remains unclear how much the optimal ownership choice affects firm performance in practice. This paper provides a first quantification of the gains from optimal ownership within multinational firms by exploiting a major liberalization of China’s policy restrictions on foreign ownership. The liberalization allowed previously restricted firms to become fully foreign-owned. We find that these reoptimized ownership choices raise firm output by 40% and productivity by 7.5% on average. An extended property-rights theory of the multinational firm rationalizes these effects and their heterogeneity.

DOI

10.1162/rest_a_01431

Volume

108 (3)

Pages

817-832

Language

en

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BibTeX

Sources

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