Country-level governance quality, foreign ownership, and firm investment: evidence from WBES database

Abstract

This study investigates the effect of foreign ownership on firm investment and how the country-level governance quality adjusts the relationship between foreign ownership and firm investment. Using the 2016–2022 World Bank Enterprise Surveys (WBES) database, the results reveal that foreign-owned firms exhibit a higher likelihood of making investments than domestic-owned firms. Specifically, the odds of research and development (R&D)/fixed asset expenditures for foreign-owned firms are 56.6/67.0% higher than the odds for domestic-owned firms. In addition, the country-level governance quality significantly influences the relationship between foreign ownership and firm investment. Good governance quality can create a better environment for foreign-owned firms to invest and can lead to a significant positive impact on investment activities.