Foreign Owned Companies and Financial Performance. A Case Study on Companies Listed on Bucharest Stock Exchange

The main objective of this paper is to investigate the relation between the foreign ownership and firm performance. The study was conducted for the companies listed on Bucharest Stock Exchange, in the first, second and third categories. The financial companies and the credit institutions were excluded from the sample. The final sample included 63 companies. Return on Assets and Return on Equity are used for measuring the financial and economic performance of the firm. The foreign ownership is measured by the percentage of shares held by foreign investors. Econometric tools like linear regression analysis are used for analysis. The results of the study suggest that there is no significant link between firm performance and the existence of foreign capital. 1. Introduction The participation of foreign capital in Romanian companies has increased in the last ten years. According to data provided by the National Trade Register Office in the period 2000-2010 the number of companies with foreign capital participation in Romania increased by 2.3 times and the amount of capital held by foreign investors increased more than 6 times. Changes in capital structure of the Romanian companies are perhaps more profound than any other country. The reasons for this internationalization of the capital of Romanian companies are obvious: access to resources, Romanian market opportunities, adapting products to specific customer preferences and needs of the Romanian production and transaction costs lower. Dramatic change of capital structure Romanian companies generated heated debates among business people, researchers, politicians and general public. A series of questions appeared, such as: What are the consequences of increasing the share of foreign capital? What happens when a large part of the business is controlled from abroad? Are there any differences between foreign investors and investors? Do foreign investors have different objectives from local investors? Are the foreign controlled companies different? Is there any risk associated with the transfer of income or job knowledge? Examination of how foreign capital affects firm performance has particularly important policy implications for governments worldwide. These governments spend impressive sum of money and resources for programs aimed to attract foreign investment with the hope of collecting the benefits of globalization, as a report of United Nations Conference on Trade and Development (UNCTAD) shows. According to legislation a firm with foreign participation is a foreign direct investment if at least 10% of equity is owned by a foreign business entity. This threshold is suggested and …