The Impact of Acquiring Control on Productivity

Abstract

Empirical studies on the importance of control rights on efficiency are hindered by actual - presumably efficient - ownership patterns. Finding settings where the right owner does not own the right asset and where ownership arbitrarily changes is challenging. In this paper I aim at overcoming these problems by investigating the elimination of foreign majority ownership restrictions in Mexico. Specifically, I study the performance of affiliates of multinational corporations for which (1) ownership restrictions appeared to bind before they were lifted, and (2) parent ownership increased from minority to majority as the reform was implemented. Using detailed plant-level information, I find that multinational control leads to large improvements in total factor productivity, particularly in industries that rely on technological innovations from their parent companies. Control is also associated with higher investment - particularly in technology intensive forms of production - and with an improvement in the skill profile of the labor force. Overall, I interpret the evidence as supportive of the property rights theory of the firm.

Keywords: corporate control, ownership, property rights, multinational corporations, foreign direct investment, Mexico

JEL Classification: D23, D24, F23, G34, G38