Internationalization and Productivity of Construction Firms in a Developing Country: The Effect of Institutional Environment and Ownership on Malaysian Construction Firms

Abstract

Construction firms in developing economies have started to explore the global market. However, whether internationalization can improve their productivity growth in the long run needs to be considered. Moreover, rapid changes in institutional environments and different ownership concentrations in developing economies can contribute to different outcomes. This study established models that examine the impact of internationalization on total factor productivity (TFP), TFP’s components, and the profitability of 86 construction firms in Malaysia from 2003 to 2016 by applying the generalized method of moments (GMM) estimator. The results showed that internationalization reduced firm productivity during Malaysia’s lack of promarket phase of 2003–2009 but became negligible during the more promarket phase of 2010–2016. The negative impact was due to scale inefficiency. The effect of regulatory control and family ownership concentration reduced the negative impact of internationalization, whereas capital availability, foreign debt, price control freedom, and government ownership negatively affected the impact of internationalization on firm productivity. This study is the first to explore the impact of internationalization on TFP’s components. It contributes to management in the engineering domain by extending insights into the effect of institutional environments, institutional dimensions, and ownership concentrations on the impact of internationalization on firm productivity.