Does Human Rights Protection Matter for Emerging Market Multinationals' Ownership Strategy?

Abstract

As emerging market multinational enterprises (EMNEs) have been increasing their global presence at a rapidly increasing pace. As they go abroad, EMNEs are faced with considerable uncertainty, especially as they seek to escape instability and underdeveloped institutional environment at home. Discrepancy between codified rules and actual practices in host countries constitutes one of the sources of such uncertainty. We propose that government respect for human rights can signal the quality of local governance to EMNE managers. We therefore examine the relationship between EMNEs’ ownership strategy, host-home country formal institutional distance and host country’s human rights issues as an example of such deviation. We find that formal institutional distance necessitates lower EMNEs’ stakes, yet clarity in human rights issues in the host country will encourage EMNEs’ to establish dominant ownership despite the institutional distance.