Country-level governance quality, foreign ownership, and firm investment: evidence from WBES database

Figures & data

Table 1. Statistical description.

Variable	Observations	Mean	Standard deviation	Minimum	Maximum
R&D	21,718	0.2247	0.4174	0	1
Asset	21,718	0.3229	0.4676	0	1
Foreign	21,718	0.1044	0.3058	0	1
AGE	21,718	2.9917	0.7901	0	5.3982
SIZE	21,718	3.5582	1.4213	0	10.3090
SALE	21,718	17.1050	2.9117	6.9078	32.0529
CFL	21,718	0.8817	0.3230	0	1
GDP	21,718	3.8280	4.2036	−11.3250	10.5078
CREDIT	21,718	52.6420	33.175	0	163.7250
INF	21,718	4.3783	3.8415	−2.4310	21.9969
FDI	21,718	2.2205	4.0802	−40.0870	60.1882
CGI	21,718	−0.0521	0.8012	−1.5275	1.7812

Notes: R&D is research and development investment; Asset is new asset bought last year; Foreign is foreign ownership; AGE is firm age; SIZE is firm size; SALE is firm sales; CFL is cash flow; GDP is GDP growth; CREDIT is private credit provided by banks (% of GDP); INF is inflation; FDI is foreign direct investment inflow (% of GDP); CGI is country-level governance index.

Table 2. Foreign ownership and firm investment.

	OLS regression		Logistic regression
	R&D (1)	Asset (2)	R&D (3)	Asset (4)
Foreign	0.0841***	0.1120***	1.5660***	1.6700***
	(8.206)	(10.352)	(8.610)	(10.534)
AGE	0.0095**	−0.0029	1.0540*	0.9800
	(2.646)	(−0.693)	(2.202)	(−0.982)
SIZE	0.0393***	0.0134***	1.3010***	1.0810***
	(15.921)	(4.828)	(16.692)	(5.636)
SALE	0.0078***	0.0190***	1.0480***	1.0970***
	(6.520)	(13.779)	(5.998)	(13.736)
CFL	0.0672***	0.0261**	2.0350***	1.1800**
	(10.555)	(3.005)	(10.031)	(3.176)
GDP	−0.0265***	−0.0326***	0.8620***	0.8540***
	(−35.123)	(−38.004)	(−30.672)	(−35.149)
CREDIT	0.0016***	0.0012***	1.0080***	1.0050***
	(14.973)	(10.770)	(14.198)	(9.971)
INF	−0.0026**	−0.0062***	0.9800***	0.9680***
	(−3.249)	(−6.809)	(−3.471)	(−6.773)
FDI	−0.0013	0.0013	0.9930	1.0070
	(−1.432)	(1.441)	(−1.688)	(1.854)
Intercept	−0.1120***	0.0083
	(−5.858)	(0.364)
Obs	21,718	21,718	21,718	21,718

Notes: R&D is research and development investment; Asset is new asset bought last year; Foreign is foreign ownership; AGE is firm age; SIZE is firm size; SALE is firm sales; CFL is cash flow; GDP is GDP growth; CREDIT is private credit provided by banks (% of GDP); INF is inflation; FDI is foreign direct investment inflow (% of GDP); CGI is country-level governance index. Columns (1) and (2) report the regression for OLS estimation. Columns (3) and (4) report the regression for logistic estimation.

*, **, *** shows significance at 10%, 5% and 1% respectively.

Table 3. Country-level governance index, foreign ownership, and firm investment.

	OLS regression		Logistic regression
	R&D (1)	Asset (2)	R&D (3)	Asset (4)
Foreign	0.0785***	0.1060***	1.535***	1.667***
	(7.904)	(10.003)	(7.868)	(10.105)
Foreign*CGI	0.0469***	0.0456***	1.064	1.226***
	(4.208)	(4.099)	(1.051)	(3.481)
AGE	0.0022	−0.0117**	0.9970	0.9330**
	(0.609)	(−2.866)	(−0.104)	(−3.204)
SIZE	0.0404***	0.0148***	1.3310***	1.0930***
	(16.541)	(5.376)	(17.643)	(6.257)
SALE	0.0077***	0.0189***	1.0530***	1.1010***
	(6.501)	(13.857)	(6.389)	(14.112)
CFL	0.0357***	−0.0123	1.5940***	0.9470
	(5.536)	(−1.397)	(6.504)	(−1.024)
GDP	−0.0243***	−0.0300***	0.8760***	0.8650***
	(−32.646)	(−35.514)	(−27.128)	(−32.050)
CREDIT	−0.0011***	−0.0020***	0.9940***	0.9900***
	(−6.950)	(−11.540)	(−7.096)	(−12.175)
INF	−0.0000	−0.0031***	0.9980	0.9800***
	(−0.013)	(−3.423)	(−0.269)	(−3.991)
FDI	0.0013	0.0043***	1.0070	1.0220***
	(1.522)	(4.773)	(1.820)	(5.667)
CGI	0.1460***	0.1770***	2.3840***	2.3200***
	(21.231)	(24.257)	(22.440)	(23.627)
Intercept	0.0595**	0.2140***
	(2.836)	(8.842)
Obs	21,718	21,718	21,718	21,718

Notes: R&D is research and development investment; Asset is new asset bought last year; Foreign is foreign ownership; AGE is firm age; SIZE is firm size; SALE is firm sales; CFL is cash flow; GDP is GDP growth; CREDIT is private credit provided by banks (% of GDP); INF is inflation; FDI is foreign direct investment inflow (% of GDP); CGI is country-level governance index. Columns (1) and (2) report the regression for OLS estimation. Columns (3) and (4) report the regression for logistic estimation.

*, **, *** shows significance at 10%, 5% and 1% respectively.

Table 4. Marginal effects of CGI.

CGI level	R&D			Asset
	Margin	z-Statistics	p-Value	Margin	z-Statistics	p-Value
−2.0	0.1007	9.54	0	0.1434	10.11	0
−1.8	0.1075	10.65	0	0.1557	11.37	0
−1.6	0.1148	12.03	0	0.1689	12.96	0
−1.4	0.1225	13.78	0	0.1829	15.00	0
−1.2	0.1306	16.07	0	0.1978	17.72	0
−1.0	0.1391	19.17	0	0.2136	21.46	0
−0.8	0.1481	23.55	0	0.2303	26.90	0
−0.6	0.1576	30.05	0	0.2479	35.31	0
−0.4	0.1676	40.03	0	0.2664	49.24	0
−0.2	0.1781	54.15	0	0.2857	72.06	0
0.0	0.1891	63.86	0	0.3058	90.80	0
0.2	0.2005	55.67	0	0.3267	75.31	0
0.4	0.2126	42.31	0	0.3483	54.62	0
0.6	0.2251	32.66	0	0.3706	41.69	0
0.8	0.2381	26.33	0	0.3934	33.80	0
1.0	0.2517	22.05	0	0.4168	28.70	0
1.2	0.2657	19.02	0	0.4404	25.22	0
1.4	0.2803	16.80	0	0.4644	22.75	0
1.6	0.2953	15.11	0	0.4885	20.94	0
1.8	0.3108	13.79	0	0.5127	19.61	0
2.0	0.3267	12.75	0	0.5368	18.61	0

Notes: R&D is research and development investment; Asset is new asset bought last year; CGI is country-level governance index.

Table 5. Logistic regression results of subsamples.

	R&D		Asset
	Negative CGI (1)	Positive CGI (2)	Negative CGI (3)	Positive CGI (4)
Foreign	1.3890***	1.3010**	1.1770*	1.4650***
	(4.438)	(3.274)	(2.510)	(4.504)
AGE	0.9980	1.1030**	0.8980***	1.1410***
	(−0.062)	(2.789)	(−3.965)	(3.766)
SIZE	1.2680***	1.2310***	1.0940***	1.0500
	(11.876)	(6.561)	(5.371)	(1.544)
SALE	1.1040***	1.1140***	1.1310***	1.2070***
	(10.951)	(5.236)	(16.521)	(9.005)
CFL	3.0870***	0.7650*	1.3640***	0.9360
	(9.995)	(−2.342)	(4.783)	(−0.563)
GDP	0.8120***	0.9640***	0.8580***	0.9580***
	(−25.698)	(−5.354)	(−22.422)	(−6.154)
CREDIT	0.9960	0.9910***	0.9800***	0.9970*
	(−1.943)	(−8.286)	(−13.432)	(−2.346)
INF	1.0250***	0.8140***	0.9710***	0.8920***
	(3.868)	(−10.357)	(−5.507)	(−5.983)
FDI	0.9780*	1.0070	1.0920***	0.9910
	(−2.144)	(1.759)	(11.752)	(−1.955)
Obs	15,761	5,957	15,761	5,957

Notes: R&D is research and development investment; Asset is new asset bought last year; Foreign is foreign ownership; AGE is firm age; SIZE is firm size; SALE is firm sales; CFL is cash flow; GDP is GDP growth; CREDIT is private credit provided by banks (% of GDP); INF is inflation; FDI is foreign direct investment inflow (% of GDP); CGI is country-level governance index. Columns (1) and (3) report the regression for the subsample of countries with negative CGI. Columns (2) and (4) report the regression for the subsample of countries with positive CGI.

*, **, *** shows significance at 10%, 5% and 1% respectively.

Table 6. IV-2SLS regression results.

	R&D (1)	Asset (2)	R&D (3)	Asset (4)
Foreign	0.0755***	0.1040***	0.0659***	0.0935***
	(7.138)	(9.317)	(6.262)	(8.252)
Foreign*CGI			0.0402***	0.0390***
			(3.490)	(3.427)
AGE	0.0106**	−0.0019	0.00380	−0.0101*
	(2.889)	(−0.454)	(1.012)	(−2.361)
SIZE	−0.0052	−0.0255*	−0.0258**	−0.0502***
	(−0.541)	(−2.421)	(−2.647)	(−4.730)
SALE	0.0483***	0.0544***	0.0680***	0.0781***
	(5.659)	(5.818)	(7.878)	(8.295)
CFL	0.0642***	0.0235**	0.0310***	−0.0169
	(9.636)	(2.693)	(4.400)	(−1.879)
GDP	−0.0330***	−0.0383***	−0.0340***	−0.0395***
	(−21.210)	(−22.212)	(−21.536)	(−22.626)
CREDIT	0.0015***	0.0012***	−0.0011***	−0.0020***
	(14.495)	(10.460)	(−6.924)	(−11.355)
INF	−0.0055***	−0.0087***	−0.0043***	−0.0073***
	(−5.602)	(−7.794)	(−4.245)	(−6.377)
FDI	−0.0007	0.0018	0.0020*	0.0051***
	(−0.864)	(1.938)	(2.431)	(5.467)
CGI			0.1470***	0.1780***
			(20.312)	(23.321)
Intercept	−0.6090***	−0.4250***	−0.6800***	−0.5120***
	(−5.786)	(−3.681)	(−6.347)	(−4.375)
Obs	21,718	21,718	21,718	21,718
Wald Chi-squared	3497.66	3023.18	3992.76	3963.23
Test of endogeneity p-Value	0.0000	0.0001	0.0000	0.0000
Test of overidentification p-Value	0.9502	0.8101	0.3038	0.1897

Notes: R&D is research and development investment; Asset is new asset bought last year; Foreign is foreign ownership; AGE is firm age; SIZE is firm size; SALE is firm sales; CFL is cash flow; GDP is GDP growth; CREDIT is private credit provided by banks (% of GDP); INF is inflation; FDI is foreign direct investment inflow (% of GDP); CGI is country-level governance index. Columns (1) and (2) report the regression for the relationship between foreign ownership and firm investment. Columns (3) and (4) report the regression for the relationship between foreign ownership and firm investment with the interaction term between country-level governance quality and foreign ownership.

*, **, *** shows significance at 10%, 5% and 1% respectively.