Home Firm Performance After Foreign Investments and Divestitures

An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the FDI - export' relationship to better understand this trend. Furthermore, by presenting results on firm's post-divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference-in-difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000-2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high-tech industries experience a strong increase in their domestic performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.