|Initial Size|Yes|Yes|Yes|
|---|---|---|---|
|Industry FE|Yes|Yes|Yes|
|Region FE|Yes|Yes|Yes|
|Year FE|Yes|Yes|Yes|
|Sample|All services<br>firms|Excluding<br>always<br>foreign firms|Excluding<br>always<br>foreign firms|

The premiums are estimated coefficients on a binary variable for foreign ownership or post-acquisition years in the case of firms that were acquired by foreigners. The pre-acquisition period of future acquisition targets is also captured by a dummy variable, and the last column tests for equality of the coefficients on the pre- and post-acquisition dummies. Initial size is controlled by the log of employees in 1998. All regressions control for industry, region and year fixed effects. The number of observations in these regressions ranges from 5096 for labor <u>productivity (due to missing values in employment) and 8092 for market share.</u> The source of firm-level information is the Amadeus data base published by Bureau van Dijk. It contains annual balance sheets and income statements of firms operating in the Czech Republic. The data base includes all firms that either had total assets of more than 20 million Czech Crowns (CZK) or a turnover of more than 40 million CZK. The firm records contain information on volume of sales, labor and intermediate inputs, stock of tangible fixed assets, and ownership structure. To obtain the largest possible sample, we use information from several releases of the Amadeus data base and focus on the period 1998– 2003.<sup>7</sup> Nominal values of output are deflated using wholesale deflators specific to 3-digit NACE sectors, obtained from the Czech Statistical Office (CSO). For capital, a deflator for tangible fixed assets, obtained from the CSO, is used.

The results, presented in table 1, suggest that there exist significant differences between domestic and foreign-owned firms operating in services industries. Foreign-owned services firms have a significantly higher labor productivity, investment outlays and market shares. Although these results demonstrate systematic differences related to ownership, they cannot be interpreted as evidence of a causal relationship. While a careful analysis of the direction of causality is beyond the scope of this paper, we can go a step further and exploit the within-firm ownership changes due to 280 foreign acquisitions that we observe in services industries in our data set.<sup>8</sup> If the performance differences are related to ownership differences _per se_ , we would expect to observe changes in these variables in firms changing their ownership status from domestic to foreign. Thus, in the second column of table 1, we exclude firms under foreign ownership throughout the period and let the foreign ownership indicator capture post-acquisition periods of the acquired firms. As before, we find that firms under foreign ownership exhibit positive and statistically significant performance premiums. In the models presented in the third column of table 1, we include two indicator variables: a dummy for the acquired firms observed _one year before_ the ownership change and a dummy for the acquired firms observed _after_ the ownership change. The coefficients on both variables are positive and statistically significant which suggests that firms changing ownership exhibit superior performance before as well as after being acquired, with the latter premium being larger. The difference between the two coefficients is statistically significant and thus presents further evidence in favor of positive performance effects associated with foreign ownership. The fact that firms increase their market share after being acquired by foreign capital is also an indication that services users value performance differences associated with foreign ownership.

> 7 As happens with most large firm-level data sets, Amadeus contains cases of obvious key punch errors. In many of these cases, we are able to obtain the correct information from account statements on the company websites. In the remaining cases, we apply rules to identify and remove probable data errors from our sample, as outlined in Appendix C.

> 8 For a more complete econometric analysis of the causal relationship between foreign ownership and firm performance in manufacturing sectors in Indonesia, see Arnold and Javorcik (2005).

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