Foreign corporations as large shareholders

In this article, we examine foreign corporate shareholders in China. We find that they play an active and effective corporate governance role that improves firm performance. The results are robust to tests that address endogeneity, selection bias, and direction‐of‐causality concerns. The methods for which foreign corporations exert effective oversight are identified: (1) they actively and effectively monitor firms (i.e., they are more likely to fire [reward] managers for poor [good] firm performance), (2) they invest more in innovation, (3) they are better at selecting investment projects, and (4) they help generate more foreign sales.