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The Overseas Subsidiary Activities and Their Impact on the Performance of Japanese Parent Firms

We investigate whether previous findings of only limited effects of investing abroad on the performance of parent firms can be explained by the aggregation of heterogeneous effects depending on the motive for foreign direct investment (FDI), sector, and location. Our results suggest, in line with previous work, that on average outward Japanese FDI has limited effects (either positive or negative) on the activity of internationalizing firms at home in the initial years after investment. However, our empirical findings confirm previous insights that the effect of moving abroad is heterogeneous depending on the affiliate sector (manufacturing versus non-manufacturing) and region of location (in USA or Europe versus in Asia). For FDI in the non-manufacturing sector located in USA or Europe, we find a positive impact on parent firm productivity. Further, we find a negative impact on parent firm employment from FDI in Asia.