Ownership Choice Research Articles

Overcoming barriers and uncertainties in the adoption of residential solar PV

In recent years decreasing hardware costs have driven down the installed price of solar photovoltaic (PV) systems and spurred adoption. However, system cost is not the only barrier faced by solar adopters. Potential adopters also face various informational barriers, leading to high indirect costs during the information search process. There is a significant gap in the literature for empirical work on solar adoption linking how the information context (installer marketing; neighbors with solar, i.e., peer effects; etc.) interacts with a potential adopter's motivations to impact decision outcomes. To address this gap we present results of a new survey on the decision-making process of residential PV adopters in northern California. The main aspects of our analysis include: salient motivating factors, information gathering process, peer effects, role of installers, and factors driving the choice of outright purchase versus third-party ownership (e.g., leasing) modes of adoption. We find that installers and neighbors play important, but often supplementary, roles throughout the decision-making process and have influence on both the decision to adopt as well as on the mode of adoption. Furthermore, expected financial returns and concerns about operations and maintenance are the main determining factors for the mode of adoption.

The Comparative Effect of Subnational and Nationwide Cultural Variation on Subsidiary Ownership Choices: The Role of Spatial Coordination Challenges and Penrosean Growth Constraints

ABSTRACTTo shed more light on the spatial determinants of foreign entry mode decisions, I examine the comparative effect of cultural variation inside target countries and target subnational regions on firms’ choices between joint ventures (JVs) and wholly owned subsidiaries. Based on the notions of spatial coordination challenges and Penrosean growth constraints, I argue that foreign entries tend to have a subnational scope, causing ownership mode choices to be more sensitive to target-region cultural variation than to target-country cultural variation. Accordingly, I hypothesize that target-region cultural varation has a more positive effect on the chance of JV selection than target-country cultural variation. I also hypothesize that this will be especially so for initially relatively large subsidiaries and subsidiaries established through acquisitions. An analysis of 170 entries by Dutch firms into 90 regions in 35 countries lends support to my hypotheses and indicates that the dominant effect of subnational cultural variation is not absolute but is confined to subsidiaries with specific establishment characteristics.

The relationship between business cycles and capital structure choice: The case of the international shipping industry

Research on capital structure choice depicts firm size, profitability, and asset tangibility as the main determinants of capital structure. The trade-off and pecking order theories of optimal capital structure predict contradictory relationships between each of these determinants and firm leverage. We attempt to reconcile the conflicting results in the literature by incorporating the impact of different phases of the economic cycle upon the choice of capital structure in a concentrated ownership setting. Studying 117 internationally listed shipping companies (about 60% of the entire population), we explore potential determinants of capital structure choice in periods of expansion (2003Q4), peak (2007Q4), trough (2008Q4), and sideways movement (2010Q4). Our finding that size, tangibility, and corporate performance constitute the main determinants of capital structure in the shipping sector is consistent with the literature. We employ the Generalized Method of Moments (GMM) to estimate the interaction between capital structure choice, corporate profitability and structure of ownership. Our model asserts bidirectional positive relationships between leverage and profitability and leverage and concentrated ownership in the peak period of 2007, but bidirectional negative relationships amongst these variables in all other periods. We conclude that the sentiment of the ship-owner during different phases of the business cycle, along with ownership concentration are key elements in explaining the relationship between profitability and leverage in the shipping sector.

Avoiding Negligence and Profusion: The Failure of the Joint-Stock Form in the Anglo-Indian Tea Trade, 1840–1870

In the nineteenth century, firms operating in the Anglo-Indian tea trade were organized using a variety of ownership forms, including partnership, joint-stock, and a combination of the two, known as the managing agency. Faced with both an increasing need for fixed capital and high agency costs caused by the distance between owners and managers, the firms adapted and increasingly adopted the hybrid managing agency model to overcome these problems. Using new data from Calcutta and Bengal Commercial Registers and detailed case studies of the Assam Company and Gillanders, Arbuthnot and Co., this article demonstrates that British entrepreneurs did not see the choice of ownership as a dichotomy or firm boundaries as fixed, but instead drew innovatively on the strengths of different forms of ownership to compete and grow successfully.

FDI motives, market governance, and ownership choice of MNEs: A study of Malaysia and Thailand from an incomplete contracting perspective

The ownership choice between full and shared ownership in MNEs’ foreign affiliates is complex, especially when they confront various institutional conditions. Drawing on the theory of incomplete contracts, we hypothesize and empirically show that the influence of host country institutions on ownership choice arises differentially between market-seeking and resource-seeking affiliates. In particular, we use the relative importance of an MNE’s versus a local partner’s non-contractible investments derived from the theory of incomplete contracts as a primary ownership determinant in explaining these differential effects. Using data from 547 MNE affiliates in Malaysia and Thailand, we demonstrate that MNEs are more likely to choose shared ownership, as compared to full ownership, in both market-seeking and resource-seeking affiliates due to the amplified impact of local idiosyncrasies across all value chain activities. However, we find that in a relatively more institutionally developed environment (i.e., with stronger market governance), this tendency for an MNE to choose shared ownership is reduced in resource-seeking affiliates, whereas the tendency is further strengthened in market-seeking affiliates, consistent with our hypotheses based on the focal theory.

The influences of past and present residential locations on vehicle ownership decisions

This study explores the relationship between historical exposure to the built environment and current vehicle ownership patterns. The influence of past exposure to the built environment on current vehicle ownership decisions may be causal, but there are alternative explanations. Households may primarily select to live in neighborhoods that facilitate their vehicle ownership preferences, or they may retain preferences that they have developed in the past, irrespective of their current situations. This study seeks to control for these alternative explanations by including the built environment attributes of households’ past residences as an influence on vehicle ownership choices. We use a dataset from a credit reporting firm that contains up to nine previous residential ZIP codes for households currently living in the 13-county Atlanta, Georgia, metropolitan area. Results show that past location is significant, but of marginal influence relative to the attributes of the current location. From a practical perspective, our results suggest that models that include current but not past neighborhood attributes (also controlling for standard socioeconomic variables) can forecast vehicle ownership decisions reasonably well. However, models that include both current and past neighborhood attributes can provide a more nuanced understanding of the built environment’s potentially causal influences on vehicle ownership decisions. This better understanding may provide more realistic forecasts of responses to densification or other travel demand management strategies.

Avoiding Negligence and Profusion: The Failure of the Joint-Stock Form in the Anglo-Indian Tea Trade, 1840–1870

In the nineteenth century, firms operating in the Anglo-Indian tea trade were organized using a variety of ownership forms, including partnership, joint-stock, and a combination of the two, known as the managing agency. Faced with both an increasing need for fixed capital and high agency costs caused by the distance between owners and managers, the firms adapted and increasingly adopted the hybrid managing agency model to overcome these problems. Using new data from Calcutta and Bengal Commercial Registers and detailed case studies of the Assam Company and Gillanders, Arbuthnot and Co., this article demonstrates that British entrepreneurs did not see the choice of ownership as a dichotomy or firm boundaries as fixed, but instead drew innovatively on the strengths of different forms of ownership to compete and grow successfully.

The Resilient Family Firm: Stakeholder Outcomes and Institutional Effects

AbstractManuscript TypeEmpiricalResearch Question/IssueOur study seeks to explain the relationship between publicly listed family‐controlled firms (FCFs) and investor and employee outcomes before and during the global financial crisis. Theoretically, we develop hypotheses suggesting that FCF resilience is beneficial to both investor and employees. Employing a large firm‐level data set of 2,949 firms across 27 European countries, we test the hypotheses that FCFs' long‐term orientation makes them resilient to the effects of economic shocks. In addition, using hierarchical linear modeling we evaluate family firm investor and employee outcomes, and the moderating impact of legal institutions protecting minority investors and employees.Research Findings/InsightsWe find that FCFs financially outperform non‐FCFs during the financial crisis, beginning in 2007 and reaching its lowest point in 2009, but show no significant differences during the stable‐growth period between 2004 and 2006. We evaluate two employee outcomes: downsizing and wage decreases. We find that FCFs are less likely to downsize their workforce or cut wages in both pre‐crisis and crisis conditions. Based upon hypotheses founded in the comparative capitalisms logic, we find significant institutional effects that are contrary to our predictions. Our findings suggest that investors and employees of FCFs achieve more favorable outcomes for their interests when the rules pertaining to investor protection and their enforcement are poorly developed.Theoretical/Academic ImplicationsWe contribute to the emerging literature on the institution‐based view of comparative corporate governance by demonstrating that family‐controlled firms' stakeholder outcomes are contingent upon legal protection for employees and investors under contrasting economic circumstances.Practitioner/Policy ImplicationsFamily owners, employees and minority investors should consider both firm‐level and country‐level governance institutions when investing in different countries, especially in times of economic crisis as jurisdiction‐level institutions and firm ownership choices produce variable outcomes for different stakeholders in both crisis and non‐crisis conditions.

Is Cross‐Listing a Commitment Mechanism?: The Choice of Destinations and Family Ownership

AbstractManuscript TypeEmpiricalResearch Question/IssueThis paper examines whether firms choose destinations with stronger investor protection than those provided in their respective home markets after controlling for both firm‐specific and destination‐specific characteristics that affect the choice of cross‐listing destination.Research Findings/InsightsUsing data on cross‐listing decisions of firms from 28 home countries targeted toward nine destinations for the 1994–2008 period, we find that firms are more likely to cross‐list in foreign markets that are less protective of outside investors relative to the home country once we simultaneously control for relevant destination‐specific and firm‐specific characteristics. Such preference for weak protection is mostly driven by family firms, but not observed among non‐family firms.Theoretical/Academic ImplicationsThese results suggest that the widely accepted “bonding” hypothesis, which posits that firms which cross‐list in order to voluntarily commit themselves to higher disclosure standards, should be interpreted with caution. Rather, controlling families may choose to list in destinations with weaker protection to retain their private benefits.Practitioner/Policy ImplicationsThe findings imply that exchanges in countries with stronger investor protection may not be attractive for potential foreign clientele, especially firms controlled by families. To increase foreign listings in a given exchange, regulators should consider not only the benefits of tight regulations such as “bonding,” but also their compliance costs.

To own or not to own your life insurance policy?

Life insurance proceeds are generally subject to the estate tax. An exception is when the policy is owned by the beneficiaries and the insured gives up ownership and control, including the ability to change beneficiaries. Should the insured strategically own the policy contract and potentially subject proceeds to estate and inheritance taxes, or relinquish control, with the beneficiaries owning the policy, and escape such transfer taxes? This paper addresses how the estate tax influences the choice of life insurance ownership. Using samples of estate tax returns, the empirical evidence suggests that those facing high estate tax rates are more likely to forgo ownership and have proceeds excluded from their estates, and provides further evidence on the incentive effect of taxes and in support of the strategic bequest motive.

Ownership Choices of Indian Direct Investors: Do FDI Determinants Differ between Joint Ventures and Wholly Owned Subsidiaries?

Using count data on Indian joint ventures (JVs) and wholly owned subsidiaries (WOS), we present an empirical analysis of foreign direct investment (FDI)-related ownership choices and their relation with host country characteristics and indicators of transaction costs. Our Negative Binomial regression models offer only weak support for the bargaining perspective, according to which JVs should be more likely if the host countries were particularly attractive in terms of market access or resource endowments. Geographical and cultural distance has ambiguous effects on the choice between JVs and WOS. The composition of FDI projects tends to shift towards WOS where investment risks are contained by bilateral treaties and better control of corruption. JEL Classification: F21

Institutional, cultural and industry related determinants of ownership choices in emerging market FDI acquisitions

In this study, we tackle a relatively un-researched question: What explains partial FDI acquisitions? The choice between full, majority, and minority ownership is explained on the basis of three locational factors – the differences, or “distances,” between the countries of the acquirer and target firm – operationalized in terms of (i) institutions, (ii) culture, and (iii) sectoral relatedness. The sample comprises 1389 acquisitions in India and China by acquirers from 33 nations over an 11-year period. We find that the likelihood of minority acquisition over majority or full becomes higher when acquisitions involve low institutional distance or high uncertainty avoidance distance. However, the likelihood of minority acquisition over full or majority becomes lower when acquisitions involve industry relatedness. The results add to our understanding of the advantages and disadvantages of partial versus full FDI acquisitions in emerging markets. This study adds to the nascent literature that uses country or location “distance” metrics to show how the multinational firm, being “multiple embedded” (Meyer et al., 2011), can take advantage of the dual location of home and host countries.

A meta-model of vehicle ownership choice parameters

This paper builds a meta-model of vehicle ownership choice parameters to predict how their values might vary across extended periods as a function of macroeconomic variables. Multinomial logit models of vehicle ownership are estimated from repeated cross-sectional data between 1971 and 1996 for large urban centers in Ontario. Three specifications are tested: a varying constants (VC) model where the alternative specific constants are allowed to vary each year; a varying scales (VS) model where the scale parameter varies instead; and a varying scales and constants model. The estimated parameters are then regressed on macroeconomic variables (e.g., employment rate, gas prices, etc.). The regressions yield good fit and statistically significant results, suggesting that changes in the macroeconomic environment influence household decision making over time, and that macroeconomic information could potentially help predict how model parameters evolve. This implies that the common assumption of holding parameters constant across forecast horizons could potentially be relaxed. Furthermore, using a separate validation dataset, the predictive power of the VC and VS models outperform conventional approaches providing further evidence that pooling data from multiple periods could also produce more robust models.

Partners in Progress? British Liberals and the Labour Party since 1918

Britain's Liberal and Labour Parties have long identified themselves with the progressive tradition, but have often disagreed about what progress means. This paper examines British Liberals’ efforts to critique state socialism during the 1930s, 1940s and 1950s and to articulate an alternative vision of progress based on wider property ownership, competitive markets and consumer choice. Although this vision sharpened the Liberal Party's political identity, it did little to improve its electoral fortunes, and gave way after 1959 to a more social liberal approach which overlapped with the thinking of Labour revisionists. The paper concludes by considering how much scope still exists for the contemporary Liberal Democrats to offer a distinctive progressive vision.

Local Externalities and Ownership Choices in Foreign Acquisitions by Multinational Enterprises

This article assesses the influence of spatial heterogeneity on the entry mode by multinational enterprises (MNEs) in foreign markets. Focusing on acquisitions, we claim that the location of the target firm influences the MNE’s ownership choice. MNEs normally execute partial acquisitions to reduce their liability of foreignness and to preserve their target’s inherent competencies, particularly in highly innovative and internationally competitive sectors. However, this phenomenon occurs less frequently if target firms are located in areas that are characterized by relevant externalities, such as core cities and industrial districts. In particular, core cities allow foreign MNEs to access a variety of information and knowledge as well as other externalities that are associated with international interconnectedness; industrial districts provide MNEs with easier access to industry-specific agglomeration economies (a local pool of skilled labor, local input-output linkages, and local knowledge spillovers). These locations provide substitutes for different aspects of the target firm’s competences, thus reducing an MNE’s need to maintain a local partner. Empirical evidence from foreign acquisitions of local manufacturing firms that occurred in Italy during the 2001–10 period confirms these expectations.

Subsidiary goals, learning orientations, and ownership strategies of multinational enterprises: evidence from foreign direct investments in Korea

This paper investigates the links among subsidiary goals, learning orientations, and ownership strategies of multinational enterprises (MNEs). The authors hypothesize that an MNE's ownership strategy is determined by subsidiary goals and learning orientations. Furthermore, interactions between learning orientations and subsidiary goals are predicted to influence the ownership strategy. Based on 723 foreign subsidiaries of MNEs operating in Korea, our findings suggest that when MNE foreign subsidiaries influence ownership choice, market-seeking goals and resource-seeking goals have a stronger fit with the exploitation orientation than with the exploration orientation. In contrast, the category of knowledge-seeking goals has a stronger fit with exploration than with exploitation.

Cross-border acquisition in services: Comparing ownership choice of developed and emerging economy MNEs in India

Despite rapid increase in cross-border acquisitions (CBAs), prior research has not examined ownership choice of foreign MNEs investing in the services sector in emerging economies. Drawing on multiple strands of literature, we posit acquirer's ownership choice (partial versus full acquisition) to be influenced by type of service offering (soft versus hard), institutional distance between acquirer and target nation, and acquirer's country-of-origin (emerging versus developed economy). Empirical analysis of 385 CBAs undertaken in India over an 11-year period provides evidence that services, in particular soft services, and high institutional distance increases the likelihood of full acquisition by emerging economy acquirers. However, acquirers from developed economies show preference for partial acquisition under similar circumstances.

How does firm experience and institutional distance impact ownership choice in high‐technology acquisitions?

One of the critical reasons for a firm to acquire other firms is to access new technology. This study seeks to understand what ownership position a firm should take in foreign markets if the target is in a high‐technology industry. Specifically, it looks at how firm‐level experience and institutional distance could impact this ownership. Using logistic regression models on a sample of 1,091 cross‐border acquisitions undertaken by firms from 36 countries over an 8‐year time period (2001–2008), we find that when firms acquire targets in a high‐technology industry, they resort to partial acquisitions. Our analysis further suggests that when firms seek targets in high‐technology industries but have experience with acquisitions or face higher institutional distance, the likelihood of full acquisitions over partial ones increases. Study findings contribute to our understanding of the interactive relationship among technology, experience, and institutional distance in determining appropriate ownership choices.

The assignment of call option rights between partners in international joint ventures

We examine call option rights as a contractual clause in international joint ventures (IJVs) and propose that the assignment of the call option right in an IJV is determined by certain ex ante asymmetries between the partners. Results show that between the two partners in an IJV, the firm with greater complementarity with the venture and greater prior IJV experience is more likely to hold the call option right; in addition, the firm's contractual choice on the call option right and its ownership choice on a greater initial equity stake are substitutive. Our focus on explicit call options advances the real options theory of collaborative agreements, and our results also highlight that option rights be considered an important part of alliance design. Copyright © 2013 John Wiley & Sons, Ltd.

Internal Ownership Structures of U.S. Multinational Firms

This paper is a comprehensive analysis of the foreign ownership structures of U.S. multinational firms. Though the vast majority of foreign subsidiaries are ultimately wholly-owned by their U.S. parents, the way these entities are arranged within the firms’ ownership structures varies considerably from simple to highly complex. The structures receive public attention because of their role in tax planning, but no academic study to date investigates the trade-offs involved in designing them jointly, or documents what the structures look like for typical firms. This paper begins to fill this gap. After establishing a basic taxonomy and a set of key facts about the structures, we look inside the black box of complex firms to investigate what forces drive internal ownership choices. We find evidence of several distinct tax motives, but also uncover a number of non-tax factors, including internal financing costs and expropriation risks.