The paper examines the differential impact of various firm characteristics on firm value across various threshold levels of foreign ownership.
Using a panel of 408 Indian publicly listed companies for the period during 2010–2018, a fixed-effect panel threshold regression model is adapted to study the threshold effects between foreign ownership and firm value. Tobin's Q is used as a proxy for firm value.
The study identifies three threshold levels, that is, four threshold regions in which foreign ownership changes its slope considerably. Various firm characteristics impact firm value differently in these four regions.
The study employs observations of the past nine years on variables identified as firm characteristics impacting firm value. Some variables are dropped due to the problem of multicollinearity. The employed variables may not be exhaustive in nature.
The present study implies that there exists no impact of foreign ownership on the value of the firm. Foreign investors invest for financial considerations and not with the objective of governing the firms. The governance effect of foreign investments is negligible, so their activism in the firms needs to be encouraged.
The study employs a novel approach to study the impact of foreign ownership on firm value applying fixed effect panel data threshold regression, considering foreign ownership as a proxy of corporate governance.
