Abstract
We use internalization theory to analyze the establishment and entry mode decisions of state-owned (SOE) and privately owned (POE) enterprises. We enrich internalization theory by building on insights from economic theory of corporate governance and taking into account particular characteristics of SOEs such as non-economic motivations, long-term orientation, and different risk preferences. We examine foreign entries over a 10-year period in the Canadian oil and gas industry. This single-country and single-industry context features foreign SOEs and POEs from a wide range of home countries, allowing a focused study of the combined influence of state ownership and home-country factors. Compared to POEs, SOEs tend to prefer acquiring stand-alone assets rather than firms, and to take lower ownership shares. We also find that differences between SOEs and POEs diminish when home countries are characterized by high government quality and market orientation and identify differences between types of SOEs, with partially owned SOEs exhibiting behaviors more similar to POEs than fully owned SOEs. We demonstrate how our enrichment of internalization theory strengthens its predictive and explanatory capacity. Our results also show that SOEs from strong and market-oriented institutional environments are similar to POEs and can be studied using the traditional internalization theory.
Highlights
Internalization theory is one of the most influential theories within international business (IB), and is often considered the general theory of the multinational enterprise (MNE) (Narula & Verbeke, 2015; Rugman 1981)
Internalization theory was developed to answer the question of why MNEs exist, in an era where most MNEs originated in Western countries, and were characterized by profit seeking behavior
The global economy is more diverse, including digital firms, family firms, and the phenomenon discussed in this paper, state-Bringing corporate governance into internalization owned enterprises (SOEs), which play an increasingly important role in the global economy (OECD, 2014)
Summary
Internalization theory is one of the most influential theories within international business (IB), and is often considered the general theory of the multinational enterprise (MNE) (Narula & Verbeke, 2015; Rugman 1981).
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