Foreign Versus Local Ownership and Performance in Eastern Versus Western EU: A Random Forest Application

Alexandra Horobet; Oana Cristina Popovici; Vlad Bulai; Lucian Belascu; Eugen Rosca

doi:10.5755/j01.ee.34.2.29499

Authors

Alexandra Horobet Bucharest University of Economic Studies, Romania https://orcid.org/0000-0001-5821-0244
Oana Cristina Popovici Bucharest University of Economic Studies; Institute for Economic Forecasting, Romanian Academy, Romania https://orcid.org/0000-0002-7711-3746
Vlad Bulai Bucharest University of Economic Studies, Romania
Lucian Belascu “Lucian Blaga” University of Sibiu, Romania https://orcid.org/0000-0002-7711-3746
Eugen Rosca “Lucian Blaga” University of Sibiu, Romania

DOI:

https://doi.org/10.5755/j01.ee.34.2.29499

Keywords:

Performance, European Union, Eastern Europe, Ownership, Random forests, Location, Foreign direct investments

Abstract

Our paper proposes the machine learning Random Forest algorithm for classifying economic activity within the European Union, building on the relevance of a reduced set of variables alongside location and industry of origin for the differences in performance between foreign versus locally-owned companies. We find a diverse landscape of business performance within the European Union that does not indicate a clear-cut dominance of foreign-owned companies against their locally-owned peers. Locally-owned companies from the Eastern European Union have been more dynamic than their foreign-owned peers in the region, which suggests a process of learning from foreign competitors and business partners. The Random Forests model performs surprisingly well given the low number of predictors and indicates that personnel costs per employee is the most important variable that discriminates between foreign and locally-owned companies. The importance of the rest of the variables, including the regional location and the industry, has a relatively uniform distribution.

Author Biographies

Alexandra Horobet, Bucharest University of Economic Studies, Romania

Alexandra Horobet is a Professor at the Department of International Business and Economics of Bucharest University of Economic Studies and a member of Editorial boards and reviewer of several high-ranked international journals. Her research interests focus on business performance analysis, foreign direct investments, risk management, and regional analysis. She is a doctoral adviser since 2012 and coordinates theses on topics in international economics, business, and finance. She is the author and co-author of edited books and chapters in books published by international publishing houses and papers in international peer-reviewed journals.

Oana Cristina Popovici, Bucharest University of Economic Studies; Institute for Economic Forecasting, Romanian Academy, Romania

Oana-Cristina Popovici is a Lecturer at the Bucharest University of Economic Studies and a Senior scientific researcher at the Institute for Economic Forecasting, Romanian Academy. Her research activity is oriented toward the analysis of foreign direct investments and diversified through topics such as the impact of renewable energies on the economy, aspects of climate change at the level of the European Union, and the impact of European initiatives on the Romanian economy. She holds a Ph.D. in International Business and is the author and co-author of several book chapters and international peer-reviewed papers.

Vlad Bulai, Bucharest University of Economic Studies, Romania

Vlad Bulai holds a PhD from The Bucharest University of Economic Studies in Romania. His research focuses on the interplay between multinational enterprises and the stakeholders of host countries, including governments and local communities, with an emphasis on the energy sector. He is currently researching the link between the sustainability discourse and the financial performance of energy companies using various quantitative methods, such as machine learning algorithms.

Lucian Belascu, “Lucian Blaga” University of Sibiu, Romania

Lucian Belascu is a Professor at the Department of Management, Marketing and Business Administration within “Lucian Blaga” University of Sibiu and a member of Editorial boards and reviewer of several high-ranked international journals. His research interests refer to business performance and trends, business strategy, logistic and foreign direct investments. He is a doctoral adviser since 2017 and author and co-author of chapters in books published by international publishing houses and papers in international peer-reviewed journals.

Eugen Rosca, “Lucian Blaga” University of Sibiu, Romania

Eugen Rosca is a doctoral student in Economics at the “Lucian Blaga” University of Sibiu, working on a thesis on economic disparities across European Union regions. He pursues his doctoral studies under the coordination of prof. Lucian Belascu.