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Does Ethnicity Pay? Evidence from Overseas Chinese FDI in China

52 Pages Posted: 27 Feb 2008 Last revised: 13 Feb 2013

Yasheng Huang

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Li Jin

Harvard Business School - Finance Unit

Yi Qian

Northwestern University - Kellogg School of Management

Date Written: February 14, 2008

Abstract

Using a comprehensive sample of all FDI firms in China, we explore the question whether ethnicity enhances operating performance. While there has been a sizable theoretical literature studying ethnicity and foreign investments, the prediction of the impact of ethnicity on firm profitability is far from clear. We demonstrate empirically that ethnic firms do not command an operational advantage over non-ethnic firms in the overall sample. Further tests suggest that while ethnic firms command an operational advantage over nonethnic firms initially, such advantage declines over time. We then explore what might have caused the decline of the ethnic advantage, and our results suggest that lack of investment in intangible and human capital by ethnic firms is driving the pattern we observe. Overall, our results suggest that ethnicity does not pay or that ethnicity does not confer a permanent operating advantage on a firm.

Keywords: China, FDI, ethnicity

JEL Classification: G30, F23, P20

Suggested Citation

Huang, Yasheng and Jin, Li and Qian, Yi, Does Ethnicity Pay? Evidence from Overseas Chinese FDI in China (February 14, 2008). MIT Sloan Research Paper No. 4690-08. Available at SSRN: https://ssrn.com/abstract=1099057 or http://dx.doi.org/10.2139/ssrn.1099057

Yasheng Huang (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Li Jin

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-5590 (Phone)
617-496-5271 (Fax)

Yi Qian

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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