Are Reshoring Decisions Influenced by External Stakeholders and Country‐Level Environmental Regulation?

Abstract

AbstractThe rationale behind reshoring activities remains unclear. Multinationals reshore their subsidiaries when regulations in the host country become too costly or difficult to manage. However, it is unclear whether the positive association between the propensity for reshoring subsidiaries and the host country's regulations applies to all types of subsidiaries (i.e. majority or minority owned) and whether it is moderated by other factors. We suggest that external stakeholders play a crucial role in strengthening the relationship between the decision to reshore and the host country's regulations. Within the context of international business, we examine the reshoring decision of a panel of subsidiaries controlled by UK multinationals located in 39 countries and focus on a specific set of environmental and corporate governance regulations. Our findings suggest that reshoring amongst minority‐owned subsidiaries is more likely to happen in countries with weak protection of shareholders and mandatory environmental disclosure. Such a relationship is also strengthened by the presence of external stakeholders, namely, foreign directors sitting on subsidiaries’ boards. We contribute to the reshoring literature by showing the role of external stakeholders and the impact of institutions and regulatory requirements on reshoring decisions.