Foreign ownership and firm performance in the German services sector

Do foreign owned firms savor a superior or suffer an inferior relative performance compared to their German counterparts? The importance of robust empirical evidence to give a detailed answer seems out of question but cannot be met by existing research to date: International studies produce rather ambiguous results, and, for Germany, evidence is not sufficient for assuming stylized facts. Furthermore, evidence for the services sector is scarce, in general. This study contributes to the literature by providing first evidence for foreign controlled enterprises in the German services sector, based on micro data of official statistics with newly available information from the EU-wide Foreign Affiliates Statistics (FATS). Export behavior and profitability, which are neglected in this context to date, apart from labor productivity, wages and size, are examined by comparing unconditional and conditional means as well as distributions along quantiles to allow for heterogeneity. A breakdown by country of origin and several domestic reference groups is performed. Results reveal persistent superior measures for foreign controlled affiliates; only labor productivity turns insignificant when German affiliates with a high degree of internationalization serve as reference. In contrast, return on sales offer an inverse average relation, and European affiliates are characterized by significantly lower wage payments and export activity compared to other foreign affiliates.