Scholars have sought to empirically understand the impact of foreign direct investment (FDI) on the economic performance of emerging market firms; however, they arrive at diverging outcomes. This study adds its perspective to extant research by using a panel dataset comprising a sample of 1,768 Indian firms over the period 2000-2019. It finds that firms with FDI (FDI firms) have better economic performance than those without FDI (domestic firms). It also finds that minority FDI firms achieve superior economic performance compared to domestic firms while majority FDI firms do not. In addition, this study finds that incremental inflow of FDI into firms facilitates improved firm economic performance. Lastly, it finds that the inflow of FDI into firms initially increases firm economic performance; however, it reaches a certain point where further FDI inflow diminishes firm economic performance, and this can be attributed to the influence of greater foreign control firms. These findings provide an understanding of the economic performance implications of foreign ownership and control for emerging market firms. Thus, they offer important contributions to FDI theories.

While institutional theory suggests MNEs prefer well-developed institutions, it is insufficient to explain why MNEs invest in less developed institutions. This study theorizes that the location decision is the trade-off between the benefits of monopoly rents in the host markets due to the special advantages and the costs of entry barriers driven by factor market distortions. Previous analysis suggests the net effect is positive, indicating MNEs are attracted to cities with higher overall factor market distortions where their special advantages are sufficient to overcome entry barriers. To figure out which type of factor market distortions attract FDIs, this study decomposes factor inputs into capital, labour and intermediate inputs based on the Cobb-Douglas production function. The conditional logit model is applied to examine the role of different types of factor market distortions on FDI subnational location choice. The results suggest that MNEs are attracted to cities with higher labour market distortion, supporting the literature that MNEs prefer cities with higher labour flexibility due to their demand for skilled workers and their higher labour productivity. Meanwhile, the attractiveness of labour market distortion is reduced in high-level cities due to the higher local autonomy to obtain support from the central government.

While institutional voids build up entry barriers in less developed markets, they also form opportunities for MNEs with special advantages to fill the market gap and take monopoly rents where local firms cannot. While theoretically MNEs financing from home markets, they still heavily rely on external capital markets in the host country (Teece, 2006). Compared with developed markets, developing markets have higher institutional voids, which increase the information asymmetry. MNEs from developed countries have more knowledge-based advantages in signalling the quality of assets, which makes them suffer less from capital market distortions while MNEs from emerging countries have to substitute external markets using internal networks or business groups. Meanwhile, the strength of ties matters in determining the capability of sourcing from other subsidiaries or headquarters from the internal network. Hence, I built a CSA-FSA matrix to theorize that the joint impact of the level of marketization of the home country and firm-level advantage in terms of knowledge-based advantages determine the location choice. The preliminary results indicate that DMNEs are attracted to cities with higher overall market distortions while EMNEs are discouraged. The impacts are significantly different.