Foreign shareholder, overseas sale and corporate profit margin

Abstract

China is actively promoting the development of a robust trading nation. In this context, utilizing data from China’s A-share listed companies spanning from 2003 to 2021, this study investigates the impact of foreign shareholders on enterprises in a scenario where overseas sales reduce the profit margin of Chinese firms. The findings reveal that overseas sales do indeed decrease the profit margin of Chinese enterprises; however, foreign shareholders mitigate this negative effect and various robustness tests support this conclusion. Mechanism analysis confirms that foreign shareholders primarily enhance enterprise productivity through improved production technology spillover effects, thereby alleviating the adverse impact of overseas sales on Chinese firms’ profit margins. Heterogeneity analysis demonstrates that both longer holding periods for foreign shareholders and multiple foreign shareholders significantly alleviate the negative influence of overseas sales on Chinese firms’ profit margins. Moreover, there is significant heterogeneity in how foreign shareholders alleviate these detrimental consequences based on property rights nature, institutional environment, overseas related party transactions and subsidiaries, as well as industry attributes. These findings have important reference value for China’s efforts towards becoming a strong trading nation and can contribute to enhancing trade capacity in other countries.

Summary

Wen's study investigates the role of foreign shareholders in moderating the negative impact of overseas sales on the profit margins of Chinese enterprises. The research utilizes data from China's A-share listed companies between 2003 and 2021. The findings indicate that while overseas sales typically decrease profit margins, foreign shareholders play a significant role in mitigating this effect. They achieve this primarily through enhancing enterprise productivity via improved production technology spillover effects. Additionally, the study highlights that longer holding periods and the presence of multiple foreign shareholders further alleviate the adverse impact. The research also identifies significant heterogeneity in how foreign shareholders influence this relationship, depending on factors such as property rights nature, institutional environment, and industry attributes. These insights are valuable for China's efforts to strengthen its position as a trading nation and can inform strategies to enhance trade capacity in other countries.