Abstract
The ownership strategy of foreign subsidiaries is an important decision for multinational enterprises (MNEs). Previous research has analyzed the effect of country dimensions on this strategy, both from the home and the host country. In this paper we delve into the effect of differences between home and host country on the MNEs’ ownership strategies. Empirically, we analyze the influence of corruption distance on the ownership strategies of Spanish and Portuguese MNEs, using data from 3,941 foreign subsidiaries. We found that the higher the absolute corruption distance between Spain (or Portugal) and the host country, the higher the ownership controlled by MNEs. However, when the host is more corrupt than the home country, MNEs have a lower ownership level in the local subsidiaries.
Highlights
When deciding to conduct foreign direct investments (FDI) in a foreign market, multinational enterprises (MNEs) need to decide on the ownership strategy (Stopford & Wells, 1972; Godinez & Liu, 2015)
We investigate whether increases in corruption distance between Spain or Portugal and a host country lead to higher ownership levels by Spanish and Portuguese MNEs in foreign subsidiaries
The benefits of total ownership balance the costs of the investment (Di Guardo, Marrocu & Paci, 2016) and a higher level of control allows firms to reduce the costs of operating alone. Considering these arguments, we propose the following hypothesis: Hypothesis 2a.Negative corruption distance between the home country (Portugal or Spain) and the host country moderates the effect of corruption distance, making smaller the ownership MNEs will seek in local subsidiaries
Summary
When deciding to conduct foreign direct investments (FDI) in a foreign market, multinational enterprises (MNEs) need to decide on the ownership strategy (Stopford & Wells, 1972; Godinez & Liu, 2015). Deciding on how to enter in a different market determines the success of international operations (Stopford & Wells, 1972; Chari & Chang, 2009; Duanmu, 2011; Di Guardo, Marrocu & Paci, 2016). The choice between wholly owned subsidiary (WOS) and joint venture (JV) has been subject of multiple investigations and many factors have been found to have an impact on the decision, such as the international experience of the firm, cultural distance between the investing country and the host country and other transaction cost related characteristics (Duanmu, 2011). One of the most crucial dimensions, due to its impact on economy, is corruption (Di Guardo, Marrocu & Paci, 2016)
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