Outward FDI from India and its impact on the performance of firms in the home country

Abstract

Purpose

This paper aims to analyse the change in performance of parent Indian firms (home effects) who have invested in overseas locations in recent times.

Design/methodology/approach

Difference-in-difference (DiD) estimate of home effects using farm level data.

Findings

Home effects of Indian outward foreign direct investment (OFDI), in general, are insignificant. However, in the case of OFDI directed only to non-offshore financial centre (OFC), some firms did enjoy beneficial home effects with respect to turnover, current ratio and leverage ratio. In the case of OFDI directed purely to OFC locations, some of the parameters exhibited negative home effects. In the subsample of Indian OFDI directed to combination of OFC and non-OFC locations, the results show positive home effects with respect to export, operating profit margin and forex earnings; however, impact on turnover seems to be negative for all the quartiles.

Research limitations/implications

Estimation of home effects using data over longer horizon may yield robust outcome.

Practical implications

These results make a strong case to draw a distinction among OFDIs to OFC, non-OFC and combination of OFC and non-OFC locations in studying the beneficial home effects of OFDI.

Originality/value

To the authors’ knowledge, this is the first paper which estimates home effects of different groups of Indian firms (based on their investment locations and size class) using difference-in-difference estimate.

Citation

Roy, I. and K., N. (2019), "Outward FDI from India and its impact on the performance of firms in the home country", Journal of Asia Business Studies, Vol. 13 No. 1, pp. 1-32. https://doi.org/10.1108/JABS-05-2017-0063