Effect of operating multiple affiliates on the performance of subsidiaries in the same host country

Abstract

Little has been reported on the effect of affiliates on their foreign subsidiary performance. In the context of multinational banks (MNBs), we empirically investigate how the establishment of multiple affiliate forms affects the performance of their subsidiaries in the same host country. We also examine the factors influencing and effective entry mode choices. Based on the transaction cost theory, we hypothesize that MNBs can benefit foreign subsidiaries using entry modes based on cost minimization and value maximization. For the period 2005–2015, we test this hypothesis on a sample of 1026 subsidiaries established by 96 MNBs across 106 countries. The results show that the simultaneous operation of multiple affiliate forms positively influences their foreign subsidiary’s performance. The transaction costs determine MNBs’ entry choices. MNBs can enhance their subsidiary’s performance using entry modes considering institutional and cultural contexts and achieving cost and value targets in the host country. This study has policy implications in that it calls for collaboration between host and home countries to develop effective supervision and resolution regimes for MNBs operating multiple affiliate forms in host countries.