State Ownership and International Expansion: The S-Curve Relationship

Abstract

We study how state ownership affects the international expansion of emerging-market firms. Building on agency theory and the resource-based view, we propose an S-curve relationship: Firms with a low level of state ownership have a limited level of international expansion, those with a medium level of state ownership have an increasing level, and those with a high level of state ownership have a decreasing level. This S-curve is the outcome of the interaction between the “hindering hand” of state ownership, arising from multilevel agency problems, and the “helping hand,” arising from state-ownership advantages. Analyses of 674 publicly traded firms from 16 emerging markets support these ideas and reveal that the inflection points in the S-curve appear at state-ownership levels of 20 percent and 43 percent.

Keywords: State Ownership, International Expansion, Foreign Direct Investment, S-Curve Relationship, Agency Theory, Resource-Based View, Emerging-Market Firms

JEL Classification: G32, F23, M16, M21