There is a positive correlation between small and medium-sized enterprise (SME) formation and performance, and economic development. This is particularly true in the Middle East and Africa where SMEs are underrepresented and face a variety of development obstacles (World Bank). Empirical evidence suggests that local SMEs may lack access to a variety of vital resources. Hence international ownership – or interaction with global multinational enterprises (MNEs) – may provide access to financing, technology, and global upstream and downstream markets.
Performance and relationship to international supply chains have been well explored for firms in developed economies, but this is not the case for firms in developing economies, largely due to lack of data. Studies focusing on developing economies contain either macroeconomic research on foreign direct investment (FDI) and export-led development, or present survey-based evidence on firm performance. Detailed financial evidence on the firm-level is lacking.
This paper aims at filling this gap. We identify internationally-owned firms and examine the impact of ownership structure on firm performance. Our results reveal a clear ownership-specific pattern. Internationally-owned SMEs use less equity and debt capital and have lower levels of leverage (debt-equity ratio). At the same time international ownership appears to significantly increase firm performance measured in sales and returns on equity despite lower levels of available capital and degrees of leverage.
When the interaction of international ownership with capital availability is taken into account, we find that this interaction does not have a positive impact, implying that internationally-owned firms use international resources – other than capital -more efficiently.