Open Access Article

Title: The impact of foreign capital on profitability: the case of Portuguese manufacturing SMEs

Authors: Luís Pacheco

Addresses: Department of Economics and Management, Portucalense University, Room 201, Rua Dr. António Bernardino de Almeida, 541-619, 4200-072 Porto, Portugal

Abstract: The objective of this paper is to examine the relationship between the firms' ownership and control structure, in particular the presence of foreign capital, and its profitability. The relation between profitability and ownership and control structure is a topic less studied in the literature. This paper uses a balanced panel data of 5.722 firms for the period 2010-2017, researching if the presence of foreign capital influences financial performance. Possible nonlinear effects or moderating and interaction roles between variables are also tested. Our results evidence that, despite foreign firms' higher levels of profitability, the degree of foreign ownership and institutional difference generally showed a non-significant relation with profitability. Nevertheless, there seems to exists a nonlinear relation between the development level of the country of origin of the share capital and profitability, with the results indicating that firms with share capital originated from more advanced countries attain a higher financial performance.

Keywords: ownership structure; profitability; small and medium enterprises; SMEs; manufacturing sector; foreign investment.

DOI: 10.1504/IJGSB.2020.110811

International Journal of Globalisation and Small Business, 2020 Vol.11 No.4, pp.391 - 412

Received: 10 Sep 2019
Accepted: 14 Feb 2020

Published online: 28 Oct 2020 *