Investment strategy and future performance: The moderating effect of ownership
Abstract
This study aims to investigate the Role of ownership structure on the Effect of investment strategy on future performance. The research focuses on ownership that compares foreign and domestic ownership structures. The research sample is a non-financial company in ASEAN countries. Multiple regression was performed to test the hypothesis using a financial dataset from 795 firm years of observation of non-financial companies in ASEAN. Our results show that foreign and domestic owners negatively affect the relationship between investment strategy and the future performance. The study’s results indicate that foreign and domestic ownership have no significant difference as a supporting factor for implementing the investment strategy in improving the company’s future performance. Our findings confirm the IO theory about implementing an investment strategy that affects future performance even though it impacts decreasing financial performance because companies need more time to see the impact of an investment strategy.
Keyword : investment strategy, ownership, future performance, industrial organization
How to Cite
Susanto, I. R., Soewarno, N., & Tjahjadi, B. (2024). Investment strategy and future performance: The moderating effect of ownership. Business: Theory and Practice, 25(1), 321–332. https://doi.org/10.3846/btp.2024.18615
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Chorna, M., Nord, G., Bezghinova, L., Melushova, I., & Diadin, A. (2019). Company development strategy choice on the grounds of innovative potential assessment. Academy of Strategic Management Journal, 18(1), 1–7.
Curtis, A., McVay, S., & Toynbee, S. (2020). The changing implications of research and development expenditures for future profitability. Review of Accounting Studies, 25, 405–437. https://doi.org/10.1007/s11142-019-09528-6
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Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637–657. https://doi.org/10.1002/smj.535
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Habtewold, T. M. (2023). Impacts of internal R&D on firms’ performance and energy consumption: Evidence from Ethiopian firms. International Journal of Innovation Studies, 7(1), 47–67. https://doi.org/10.1016/j.ijis.2022.09.001
Habtoor, A. S. (2019). Do competitive strategies moderate the relationship between learning organizations and the performance of Higher education institutions? Academy of Strategic Management Journal, 18(2), 1–11.
Horobet, A., Popovici, O. C., Bulai, V., Belascu, L., & Rosca, E. (2023). Foreign versus local ownership and performance in Eastern Versus Western EU: A random forest application. Inzinerine Ekonomika-Engineering Economics, 34(2), 123–138. https://doi.org/10.5755/j01.ee.34.2.29499
Jaisinghani, D. (2016). Impact of R&D on profitability in the pharma sector: An empirical study from India. Journal of Asia Business Studies, 10(2), 194–210. https://doi.org/10.1108/JABS-03-2015-0031
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Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55(2), 867–891. https://doi.org/10.1111/0022-1082.00229
Kwon, H. U., & Park, J. (2018). R&D, foreign ownership, and corporate groups: Evidence from Japanese firms. Research Policy, 47(2), 428–439. https://doi.org/10.1016/j.respol.2017.11.010
Li, P. Y., & Huang, K. F. (2019). The antecedents of innovation performance: The moderating Role of top management team diversity. Baltic Journal of Management, 14(2), 291–311. https://doi.org/10.1108/BJM-07-2017-0202
Likitwongkajon, N., & Vithessonthi, C. (2020). Do foreign investments increase firm value and firm performance? Evidence from Japan. Research in International Business and Finance, 51(August 2018), Article 101099. https://doi.org/10.1016/j.ribaf.2019.101099
Lindemanis, M., Loze, A., & Pajuste, A. (2019). The effect of domestic to foreign ownership change on firm performance in Europe. International Review of Financial Analysis, 81, Article 101341. https://doi.org/10.1016/j.irfa.2019.04.004
Liu, K., & Lin, B. (2019). Research on influencing factors of environmental pollution in China: A spatial econometric analysis. Journal of Cleaner Production, 206, 356–364. https://doi.org/10.1016/j.jclepro.2018.09.194
Mahmoud, D. M. (2019). The relationship between human resource management strategies and regulatory restraint: Evidence from Iraq. Academy of Strategic Management Journal, 18(3), 1–16.
Masum, M. H., & Ahmed, H. (2019). Corporate social responsibility disclosures and corporate performance: Evidence from the listed companies in Bangladesh. Academy of Strategic Management Journal, 18(2), 1–16.
Molina-Sieiro, G., Galdino, K. M., & Holmes, R. M. (2023). Ownership types, institutions, and the internationalization of emerging economy new ventures: Evidence from Africa. Small Business Economics, 60(3), 1121–1145. https://doi.org/10.1007/s11187-022-00650-5
Morbey, G. K., & Reithner, R. M. (1990). How R&D affects sales growth, productivity and profitability. Research-Technology Management, 33(3), 11–14. https://doi.org/10.1080/08956308.1990.11670656
Park, H., & Lee, J. (2019). R&D dynamics and firm growth: The importance of R&D persistency in the economic crisis. International Journal of Innovation Management, 23(5), 1–24. https://doi.org/10.1142/S136391961950049X
Peng, M. W. (2002). Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19, 251–267. https://doi.org/10.1023/A:1016291702714
Phung, D. N., & Mishra, A. V. (2015). Ownership structure and firm performance: Evidence from Vietnamese listed firms. Australian Economic Papers, 55(1), 63–98. https://doi.org/10.1111/1467-8454.12056
Pindado, J., de Queiroz, V., & de la Torre, C. (2015). How do country-level governance characteristics impact the relationship between R&D and firm value? R&D Management, 45(5), 515–526. https://doi.org/10.1111/radm.12115
Porter, M. E. (1981). The contributions of industrial organization to strategic management. Academy of Management Review, 6(4), 609–620. https://doi.org/10.5465/amr.1981.4285706
Rizan, M., Balfas, F., & Purwohedi, U. (2019). The influence of strategic orientation, organizational innovation capabilities and strategic planning on the performance of technology-based firms. Academy of Strategic Management Journal, 18(3), 1–11.
Roy, I., & Narayanan, K. (2019). Outward FDI from India and its impact on the performance of firms in the home country. Journal of Asia Business Studies, 13(1), 1–32. https://doi.org/10.1108/JABS-05-2017-0063
Ruiqi, W., Wang, F., Xu, L., & Yuan, C. (2017). R&D expenditures, ultimate ownership and future performance: Evidence from China. Journal of Business Research, 71, 47–54. https://doi.org/10.1016/j.jbusres.2016.10.018
Schiffbauer, M., Siedschlag, I., & Ruane, F. (2017). Do foreign mergers and acquisitions boost firm productivity? International Business Review, 26(6), 1124–1140. https://doi.org/10.1016/j.ibusrev.2017.04.003
Tseng, M., Tan, P. A., Jeng, S., Lin, C. R., Negash, Y. T., Darsono, S. N. A. C. (2019). Sustainable investment: Interrelated among corporate governance, economic performance and market risks using investor preference approach. Sustainability, 11(7), Article 2108. https://doi.org/10.3390/su11072108
Ulku, H., & Teoman, M. (2015). The impact of R&D and knowledge diffusion on the productivity of manufacturing firms in Turkey. Journal of Productivity Analysis, 44(1), 79–95. https://doi.org/10.1007/s11123-015-0447-x
Vithessonthi, C., & Racela, O. C. (2015). Short- and long-run effects of internationalization and R&D intensity on firm performance. Journal of Multinational Financial Management, 34, 28–45. https://doi.org/10.1016/j.mulfin.2015.12.001
Wang, X., & Wang, J. (2015). Benefits of foreign ownership: Evidence from foreign direct investment in China. Journal of International Economics, 97(2), 325–338. https://doi.org/10.1016/j.jinteco.2015.07.006
Wu, J., Zahoor, N., Khan, Z., & Meyer, M. (2023). The effects of inward FDI communities on the research and development intensity of emerging market locally domiciled firms: Partial foreign ownership as a contingency. Journal of Business Research, 156(December 2022), Article 113487. https://doi.org/10.1016/j.jbusres.2022.113487
Yoo, J., Lee, S., & Park, S. (2019). The effect of firm life cycle on the relationship between R&D expenditures and future performance, earnings uncertainty, and sustainable growth. Sustainability, 11(8), Article 2371. https://doi.org/10.3390/su11082371
Alam, A., Uddin, M., Yazdifar, H., Shafique, S., & Lartey, T. (2020). R&D investment, firm performance and the moderating role of system and safeguard: Evidence from emerging markets. Journal of Business Research, 106(November 2018), 94–105. https://doi.org/10.1016/j.jbusres.2019.09.018
Alam, M. S., Atif, M., Chien-Chi, C., & Soytaş, U. (2019). Does corporate R&D investment affect firm environmental performance? Evidence from G-6 countries. Energy Economics, 78, 401–411. https://doi.org/10.1016/j.eneco.2018.11.031
Association of Southeast Asian Nations. (2022). ASEAN investment Report 2022. https://asean.org/book/asean-investment-report-2022/
Bentivogli, C., & Mirenda, L. (2017). Foreign ownership and performance: Evidence from Italian firms. International Journal of the Economics of Business, 24(3), 251–273. https://doi.org/10.1080/13571516.2017.1343542
Bond, S. R., & Guceri, I. (2017). R&D and productivity: Evidence from large UK establishments with substantial R&D activities. Economics of Innovation and New Technology, 26(October), 108–120. https://doi.org/10.1080/10438599.2016.1203525
Chae, H., Koh, C. E., & Park, K. O. (2018). Information & management Information technology capability and firm performance: Industry’s role. Information & Management, 55(5), 525–546. https://doi.org/10.1016/j.im.2017.10.001
Chen, Y., Hua, X., & Boateng, A. (2016). Effects of foreign acquisitions on financial constraints, productivity and investment in R&D of target firms in China. International Business Review, 26(4), 640–651. https://doi.org/10.1016/j.ibusrev.2016.12.005
Chorna, M., Nord, G., Bezghinova, L., Melushova, I., & Diadin, A. (2019). Company development strategy choice on the grounds of innovative potential assessment. Academy of Strategic Management Journal, 18(1), 1–7.
Curtis, A., McVay, S., & Toynbee, S. (2020). The changing implications of research and development expenditures for future profitability. Review of Accounting Studies, 25, 405–437. https://doi.org/10.1007/s11142-019-09528-6
David, P., Yoshikawa, T., Chari, M. D. R., & Rasheed, A. A. (2006). Strategic investments in Japanese corporations: Do foreign portfolio owners foster underinvestment or appropriate investment? Strategic Management Journal, 27(6), 591–600. https://doi.org/10.1002/smj.523
Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637–657. https://doi.org/10.1002/smj.535
Girma, S., Gong, Y., Görg, H., & Lancheros, S. (2015). Investment liberalization, technology take-off and export markets entry: Does foreign ownership structure matter? Journal of Economic Behavior and Organization, 116, 254–269. https://doi.org/10.1016/j.jebo.2015.04.008
Habtewold, T. M. (2023). Impacts of internal R&D on firms’ performance and energy consumption: Evidence from Ethiopian firms. International Journal of Innovation Studies, 7(1), 47–67. https://doi.org/10.1016/j.ijis.2022.09.001
Habtoor, A. S. (2019). Do competitive strategies moderate the relationship between learning organizations and the performance of Higher education institutions? Academy of Strategic Management Journal, 18(2), 1–11.
Horobet, A., Popovici, O. C., Bulai, V., Belascu, L., & Rosca, E. (2023). Foreign versus local ownership and performance in Eastern Versus Western EU: A random forest application. Inzinerine Ekonomika-Engineering Economics, 34(2), 123–138. https://doi.org/10.5755/j01.ee.34.2.29499
Jaisinghani, D. (2016). Impact of R&D on profitability in the pharma sector: An empirical study from India. Journal of Asia Business Studies, 10(2), 194–210. https://doi.org/10.1108/JABS-03-2015-0031
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x
Khanna, T., & Palepu, K. (2000). Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. Journal of Finance, 55(2), 867–891. https://doi.org/10.1111/0022-1082.00229
Kwon, H. U., & Park, J. (2018). R&D, foreign ownership, and corporate groups: Evidence from Japanese firms. Research Policy, 47(2), 428–439. https://doi.org/10.1016/j.respol.2017.11.010
Li, P. Y., & Huang, K. F. (2019). The antecedents of innovation performance: The moderating Role of top management team diversity. Baltic Journal of Management, 14(2), 291–311. https://doi.org/10.1108/BJM-07-2017-0202
Likitwongkajon, N., & Vithessonthi, C. (2020). Do foreign investments increase firm value and firm performance? Evidence from Japan. Research in International Business and Finance, 51(August 2018), Article 101099. https://doi.org/10.1016/j.ribaf.2019.101099
Lindemanis, M., Loze, A., & Pajuste, A. (2019). The effect of domestic to foreign ownership change on firm performance in Europe. International Review of Financial Analysis, 81, Article 101341. https://doi.org/10.1016/j.irfa.2019.04.004
Liu, K., & Lin, B. (2019). Research on influencing factors of environmental pollution in China: A spatial econometric analysis. Journal of Cleaner Production, 206, 356–364. https://doi.org/10.1016/j.jclepro.2018.09.194
Mahmoud, D. M. (2019). The relationship between human resource management strategies and regulatory restraint: Evidence from Iraq. Academy of Strategic Management Journal, 18(3), 1–16.
Masum, M. H., & Ahmed, H. (2019). Corporate social responsibility disclosures and corporate performance: Evidence from the listed companies in Bangladesh. Academy of Strategic Management Journal, 18(2), 1–16.
Molina-Sieiro, G., Galdino, K. M., & Holmes, R. M. (2023). Ownership types, institutions, and the internationalization of emerging economy new ventures: Evidence from Africa. Small Business Economics, 60(3), 1121–1145. https://doi.org/10.1007/s11187-022-00650-5
Morbey, G. K., & Reithner, R. M. (1990). How R&D affects sales growth, productivity and profitability. Research-Technology Management, 33(3), 11–14. https://doi.org/10.1080/08956308.1990.11670656
Park, H., & Lee, J. (2019). R&D dynamics and firm growth: The importance of R&D persistency in the economic crisis. International Journal of Innovation Management, 23(5), 1–24. https://doi.org/10.1142/S136391961950049X
Peng, M. W. (2002). Towards an institution-based view of business strategy. Asia Pacific Journal of Management, 19, 251–267. https://doi.org/10.1023/A:1016291702714
Phung, D. N., & Mishra, A. V. (2015). Ownership structure and firm performance: Evidence from Vietnamese listed firms. Australian Economic Papers, 55(1), 63–98. https://doi.org/10.1111/1467-8454.12056
Pindado, J., de Queiroz, V., & de la Torre, C. (2015). How do country-level governance characteristics impact the relationship between R&D and firm value? R&D Management, 45(5), 515–526. https://doi.org/10.1111/radm.12115
Porter, M. E. (1981). The contributions of industrial organization to strategic management. Academy of Management Review, 6(4), 609–620. https://doi.org/10.5465/amr.1981.4285706
Rizan, M., Balfas, F., & Purwohedi, U. (2019). The influence of strategic orientation, organizational innovation capabilities and strategic planning on the performance of technology-based firms. Academy of Strategic Management Journal, 18(3), 1–11.
Roy, I., & Narayanan, K. (2019). Outward FDI from India and its impact on the performance of firms in the home country. Journal of Asia Business Studies, 13(1), 1–32. https://doi.org/10.1108/JABS-05-2017-0063
Ruiqi, W., Wang, F., Xu, L., & Yuan, C. (2017). R&D expenditures, ultimate ownership and future performance: Evidence from China. Journal of Business Research, 71, 47–54. https://doi.org/10.1016/j.jbusres.2016.10.018
Schiffbauer, M., Siedschlag, I., & Ruane, F. (2017). Do foreign mergers and acquisitions boost firm productivity? International Business Review, 26(6), 1124–1140. https://doi.org/10.1016/j.ibusrev.2017.04.003
Tseng, M., Tan, P. A., Jeng, S., Lin, C. R., Negash, Y. T., Darsono, S. N. A. C. (2019). Sustainable investment: Interrelated among corporate governance, economic performance and market risks using investor preference approach. Sustainability, 11(7), Article 2108. https://doi.org/10.3390/su11072108
Ulku, H., & Teoman, M. (2015). The impact of R&D and knowledge diffusion on the productivity of manufacturing firms in Turkey. Journal of Productivity Analysis, 44(1), 79–95. https://doi.org/10.1007/s11123-015-0447-x
Vithessonthi, C., & Racela, O. C. (2015). Short- and long-run effects of internationalization and R&D intensity on firm performance. Journal of Multinational Financial Management, 34, 28–45. https://doi.org/10.1016/j.mulfin.2015.12.001
Wang, X., & Wang, J. (2015). Benefits of foreign ownership: Evidence from foreign direct investment in China. Journal of International Economics, 97(2), 325–338. https://doi.org/10.1016/j.jinteco.2015.07.006
Wu, J., Zahoor, N., Khan, Z., & Meyer, M. (2023). The effects of inward FDI communities on the research and development intensity of emerging market locally domiciled firms: Partial foreign ownership as a contingency. Journal of Business Research, 156(December 2022), Article 113487. https://doi.org/10.1016/j.jbusres.2022.113487
Yoo, J., Lee, S., & Park, S. (2019). The effect of firm life cycle on the relationship between R&D expenditures and future performance, earnings uncertainty, and sustainable growth. Sustainability, 11(8), Article 2371. https://doi.org/10.3390/su11082371