Economic Openness and Institutional Embeddedness: Global Capital and Firm Performance in China's Stock Market*

Objectives: This study advances the theoretical perspective in studying economic globalization that emphasizes the moderating role of local institutions on the potential benefits brought by foreign investments on host nations. Methods: We use mixed-effects regression models to analyze a longitudinal data set of China's publicly listed firms between 1996 and 2012, examining how foreign share affects firm performance independently and how domestic ownerships moderate foreign share's effects on firm profitability. Results: Our results show partial evidence for the positive role of foreign ownership on firm performance. We find that private share positively moderates the effects of foreign share on firm profitability whereas state share plays a negative moderating role. As a progressive state ownership, state institutional share appears to cooperate with foreign share more effectively than state share. Conclusion: We suggest that the global-local partnership plays a critical role in assessing the consequences of foreign capital on local firm outcomes.