Portfolio ownership, production shifts, and downside risks: Evidence from Korea

Abstract

This study intends to advance the multinational operational flexibility literature while examining how current ownership status affects production shifts and downside risks among international investments of multinational corporations. It also explores the moderating effects of environmental boundary conditions influencing the relationships between production shifts and downside risks. An empirical examination of a large sample of Korean overseas manufacturing subsidiaries shows that a low ownership level in an MNC’s investment portfolio decreases production shifts. We also find that the reduced production shifts due to small portfolio ownership lead to downside risk increase. The nested relationship between decreased production shifts and increased downside risks is more salient under significantly-reduced labor cost uncertainty to a low level or lowly-correlated labor costs across countries. These findings imply that portfolio ownership can be understood as a corporate strategic intention to enhance cross-country transferrability and coordinatibility for cross-border production shifts and downside risk reduction.