Subsidiaries In Countries Research Articles

Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations

This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs’ internal controls and risk management plays an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking organizations engage in cross-country regulatory arbitrage, with potentially adverse consequences.

Competing values in Asian business: evidence from India and Dubai

Purpose The purpose of this paper is to highlight the fact that investors in the Asian region are shifting their investments from one country to another, in this case, from India to Dubai, in the real estate and infrastructure industry. While countries compete to get investments, competing “values” at the workplace may also influence in attracting the investments. This paper makes use of competing values framework (CVF) to understand this phenomenon and to provide research evidence about differences in workplace cultures in India and Dubai. It is proposed that differences in workplace cultures, besides other non-cultural factors, may influence this phenomenon of shifting of investments between the two countries. Design/methodology/approach It is an inductive study to investigate why investors are shifting investments from India to Dubai in the real estate and infrastructure industry. This paper further explores literature to support our claim that workplace cultural differences may be responsible for the shifting investments. Next, this paper identifies the instrument called organizational culture assessment instrument using CVF to collect data and plot the cultural profiles at the two country sites. Findings The findings suggest that workplace cultures in the two country locations are different and could be a reason for Indians to shift their investments to Dubai in the real estate and infrastructure sector. There are both cultural and non-cultural factors, which are responsible for the shift in global investments. Research limitations/implications The study has several research implications. It highlights the possibility of a shift in global investments because of cultural and non-cultural differences at the workplace. Specifically, it provides evidence that workplace cultures are different in the two countries and could play a role in the competitiveness of firm and countries. This finding has implications for research in the fields of both strategy and international business.However, this is a preliminary study to explore a recent phenomenon and uses data from only one organization in two countries. Therefore, this paper accepts this as a limitation; however, it creates a potential for further exploration in many directions for future research. Practical implications Managers in multinational firms have to deal with subsidiaries in different countries with different cultures. While culture is not traditionally considered an important factor, the study highlights that it may have far-reaching influences on financial decisions. Therefore, managers need to understand cultures and create strategies to deal with diverse cultures. Originality/value It is perhaps the first attempt to investigate the workplace culture across India and Dubai in the real estate and infrastructure industry through empirical evidence. Further, in the context of shifting global investments across the two countries, it highlights the importance of workplace cultures towards economic and financial implications for countries in the Asian subcontinent.

Can’t take the heat? Climate and foreign subsidiary locations

PurposeThis paper aims to build upon climato-economic theory to investigate the issue of climate’s effect on foreign expansion and location choice.Design/methodology/approachThis empirical paper looks at foreign subsidiary location through the lens of the climato-economic theory. To do this, the study uses a balanced data set, looking at foreign expansion before, during and after the global financial crisis of US multinational firms. A multilevel step-wise regression is used to look at climate, culture and economic effects on foreign location choice.FindingsThe findings suggest that US multinational enterprises tend to have fewer foreign subsidiaries in countries with extreme climates, and they prefer locations with warmer climates, avoiding locations with colder climates, although they gravitate toward locations with less sunshine. Climate emerges as an important factor in location choice, with greater weighting than other factors, including economic and cultural factors in times of economic calm, but the weightings of the factors change during times of economic crisis.Originality/valueThis paper contributes to the global business literature by extending the climate-economic theory to macro levels affecting the firm. The paper is the first to look specifically at how climate affects foreign subsidiary location.

How Industry’s International Connectedness Influence Firms’ Knowledge Sourcing?

We investigate the impact of the relative openness of an industry on knowledge sourcing. While prior studies have mainly paid attention to relationship between parents and subsidiaries in foreign countries for international knowledge sourcing, we attempt to analyze international and local knowledge sourcing with a wider set of knowledge sourcing channels in an aggregate level. By considering export-intensity and inward FDI in an industry, we examine that how international connectedness through the relative openness of an industry can influence knowledge sourcing from abroad and knowledge sourcing locally. Our results suggest that the relative openness and international connectedness can bring more accessibility to foreign knowledge and help accumulation of technological capability. Therefore, they can be critical for exploiting knowledge dispersed over the world and influence intra- and inter-industry knowledge sourcing behavior in the home country.

Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment

In this study, using dynamic panel data, we investigated the influences of the home country economic environment and parent bank condition on the credit risk of foreign banks in Central and Eastern European (CEE) countries. We concentrated on the international transmission of credit risk through the internal capital market of multinational banks. Our theoretical assumptions follow studies that document how the parent bank condition and home country macroeconomic environment affect lending in subsidiaries in CEE countries. However, our results go one step further. We provide evidence that these relationships are reflected in subsidiaries’ credit risk in CEE countries. Our results suggest that the size and profitability of the parent bank have negative influences, while the liquidity and credit risk of the parent bank have positive influences on the subsidiaries’ credit risk. Moreover, the GDP growth in the parent bank’s country has a negative effect on the credit risk of the subsidiary, while the lending rate and liquidity in the parent bank country cause growth in the credit risk. These results indicate a new channel of international risk transfer from parent bank countries to host countries through foreign-owned banks.

From the Import-Substituting Industrialization to Internationalization in the Machine Tools Industr

This paper aims to describe Romi’s business history in order to contribute to the discussion and improve the understanding of how Brazil, with strong industrial growth during the import substitution process, but with low technological development, generated companies that exported technology-intensive capital goods, and also started these firms’ internationalization process. Romi started out as a small business, an automobile repair shop, at the beginning of the twentieth century. In the 1960s, the company was already one of the largest lathe producers in the world. Today, it is still an important machine tools producer in Brazil with subsidiaries in several countries around the world.

Will BEPS Allow New Zealand to Finally Tax Google?

Tax avoidance by major US multinationals has been extremely topical over the last decade since the GFC. One of the MNEs at the forefront of this controversy is Google. It has been able to snare a dominant share of the international online advertising market without paying any significant amounts of tax in countries where it obtains orders other than the US. It has been able to do so by structuring its affairs so that it does not have a “permanent establishment” (PE) in New Zealand. Instead its New Zealand customers conclude contracts directly with Google subsidiaries in countries which New Zealand has concluded a DTA with but otherwise impose low taxes such as Singapore and Ireland. The BEPS project has been undertaken by the OECD to deal with MNE tax avoidance. New Zealand has been an active participant in this project seeing a multilateral forum such as the OECD as the best way to deal with this problem rather than taking independent steps of its own. The multilateral instrument (MLI) arising out of the BEPS project is designed to modify a large number of the world’s DTAs at one time to deal with this tax avoidance problem such PE avoidance by MNEs such as Google. The MLI is a modular convention in that signatory states do not have to agree to adopt all parts of it. This paper analyses the responses of several of New Zealand’s key DTA partners in respect of Part IV of the MLI dealing with PE avoidance. It will be concluded that the MLI is unlikely to prove effective for New Zealand in deal with tax avoidance by Google. It appears that New Zealand may need to adopt a unilateral strategy to effectively tax Google on its profits earned from New Zealand advertisers outside the BEPS project which is proposed in a bill introduced to the New Zealand Parliament in December 2017. Consideration is finally made whether this bill will be effective in securing tax revenue from MNEs such as Google.

Current transformation trends in the economy in response to transnationalization

The article considers current trends of transnationalization in the light of globalization of the world economy. The sources and channels of foreign direct investments are analyzed. It is pointed out, that the degree of TNC penetration into other countries’ economies is described by a means of ranking companies called transnationality index. The key factors of the rapid growth of TNCs and their turning into one of the most important actors of the current market economy are identified. There seems to be a tendency to a greater consolidation of TNCs, which is evidenced by a growing number of mergers and acquisitions of economic entities. It is noted that an increase in foreign direct investments over the last decades has been related to a rapid growth of international corporations that make investments, have branches and subsidiaries in many countries of the world. It is stressed that a further study of transnationalization should be carried out to understand both positive and negative consequences of structural changes in the global economy. A particular attention should be paid to changes in ways and systems of interaction between strategically significant sectors of the economy.A primary purpose of the paper is to consider the current role of TNCs, and to assess the degree of TNCs’ impact on the dynamics of changes in the world economy and international economic relations in the context of transnationalization. The growth of TNCs, which is currently observed, has given a new impetus to integration processes in the world economy. Definitely, it is due to the fact that overseas branches seek to be an integral part of economies of host countries and become incorporated into domestic markets of other countries. Modern TNCs are a combination of national enterprises and foreign affiliates, that form a coherent global system, in which separate branches located in various countries, operate within a framework of unified global strategy. Another feature of TNCs is their severe competition not only in the world markets of goods and services, but also on capital, labour, technology, and information markets.

How Does Regulation Affect the Organizational Form of Banks' Presence in Developing and Developed Countries?

Using a unique hand-collected dataset of 1,251 European Union banks and their 20,850 foreign affiliates hosted in 154 countries, this paper investigates how both host country and home country regulation affects their decision on how to go abroad to both developed and developing countries. Controlling for various factors, we find that host country banking regulation is an important factor in explaining organizational form (subsidiaries versus branches), but that such a factor is strongly influenced by the level of development of the host country. While banks are very careful in limiting their expansion to the relatively safest world countries, they are more likely to open branches rather than subsidiaries in countries with stringent activity restrictions and capital requirements; especially when they are relatively less efficient. Additionally, retail-oriented banks tend to prefer to operate subsidiaries in the most developed countries and competitive markets.

Holding corporations from middle countries accountable for human rights violations: a case study of the Vietnamese company investment in Cambodia

ABSTRACTLand grabbing in poor countries by transnational corporations has been increasing, causing great concern over human rights violations in countries where states often lack the ability or will to regulate the conduct of foreign-owned companies. Civil society organizations have played a significant role in attempts to hold companies from Organisation for Economic Co-operation and Development (OECD) countries accountable for human rights violations by their subsidiaries in poor countries. However, civil society pressure for accountability from companies whose home base is in non-OECD, middle-income, countries is rare. This paper explores the human rights impacts of the Cambodian operations of Vietnam’s Hoang Anh Gia Lai (HAGL) company, and how affected communities and NGOs in Cambodia have tried to hold HAGL accountable for its wrongdoing through approaching the Office of the Compliance Advisor Ombudsman of the International Finance Corporation. This is an initial attempt to examine how civil society and affected communities have challenged a Vietnamese company with no prior record of engaging with players from outside its home territory about the human rights impacts of its investments in Cambodia.

Local Versus International Crises, Foreign Subsidiaries and Bank Stability: Evidence from the MENA Region.

We investigate the impact of global and local crises on bank stability and examine the effect of owning bank subsidiaries in other countries. We consider banks from MENA countries which experienced both types of crises during our sample period. Our findings highlight a negative impact of the global financial crisis of 2007-2008 on bank stability but, on the whole, no negative impact of the 'Arab Spring'. A deeper investigation shows that owning subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the 'Arab Spring' but not during the global financial crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize the 'Arab Spring' crisis, while being present in three or more regions is more stabilizing during the 'Arab Spring' but also more destabilizing during the global financial crisis. Our findings contribute to the literature examining bank stability and have several policy implications. (T. Al Raheb). c Email: amine.tarazi@unilim.fr (A. Tarazi) 2 Local Versus International Crises, Foreign Subsidiaries and Bank Stability: Evidence from the MENA Region. Abstract We investigate the impact of global and local crises on bank stability and examine the effect of owning bank subsidiaries in other countries. We consider banks from MENA countries which experienced both types of crises during our sample period. Our findings highlight a negative impact of the global financial crisis of 2007-2008 on bank stability but, on the whole, no negative impact of the 'Arab Spring'. A deeper investigation shows that owning subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the 'Arab Spring' but not during the global financial crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize the 'Arab Spring' crisis, while being present in three or more regions is more stabilizing during the 'Arab Spring' but also more destabilizing during the global financial crisis. Our findings contribute to the literature examining bank stability and have several policy implications.

Local versus International Crises and Bank Stability: does bank foreign expansion make a difference?

ABSTRACTWe investigate the impact of global and local crises on bank stability in the MENA region and examine the effect of owning bank subsidiaries in other countries. We consider banks that experienced both types of crises during our sample period. Our findings highlight a negative impact of the Global Financial Crisis of 2007–2008 on bank stability but, on the whole, no negative impact of the local crisis. A deeper investigation shows that owning bank subsidiaries outside the home country is a source of increased fragility during normal times, yet a source of higher stability during the local crisis but not during the international crisis. Moreover, owning foreign subsidiaries in one or two world regions is insufficient to neutralize both types of crises, while being present in three or more regions is more stabilizing during a local crisis but also more destabilizing during an international crisis. Our findings contribute to the literature examining bank stability and have several policy implications.

Withdrawal of overseas subsidiaries from Asia: the case of the Japanese food industry

PurposeThe purpose of this paper is to analyze the factors that have influenced the withdrawal of Japanese overseas food industry subsidiaries from Asia.Design/methodology/approachThe data refer to Asian subsidiaries of Japanese companies engaged in food production activities. The data set covers 545 overseas subsidiaries from 2003 to 2014, and the total number of observations is 3,513. A linear probability model examines the factors influencing the probability of a subsidiary withdrawing.FindingsThe results show that strong relationships between parent companies and overseas subsidiaries, specifically in terms of personnel and capital, reduce the likelihood of withdrawal. The number of years in business has a positive effect on withdrawal. Additionally, investment aims, such as the establishment of an international production network and acquisition of host country markets, affect the probability of withdrawal. The results are similar for subsidiaries in China and other countries, but there are differences regarding subsidiaries’ histories and investment aims.Originality/valueThere is limited research on food companies withdrawing from overseas markets. This study bridges the gap in the literature by compiling micro-level data and conducting a quantitative analysis of such withdrawals from overseas markets. The originality of this study is that it shows the effects of investment aims on subsidiary withdrawal, representing various aspects of overseas subsidiaries, and compares the estimation results with the recent trends in food markets in Asia.

Multinational Firms and the International Transmission of Crises: The Real Economy Channel

We study how non-financial multinational companies propagate economic declines from their subsidiaries located in countries experiencing an economic downturn to subsidiaries in countries not experiencing one. We find that investment is 18% lower in subsidiaries of these parents relative to the same-industry, same-country subsidiaries of parents that are headquartered in the same parent country but do not have a subsidiary in a country experiencing an economic downturn. The employment growth rate in the affected subsidiaries is zero or negative while it is 1.4% in the subsidiaries of unaffected parents. The aggregate industry-level sales and employment are also negatively impacted in the countries of the affected subsidiaries. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Foreign Investment, Regulatory Arbitrage, and the Risk of U.S. Banking Organizations

This study investigates the implications of cross-country differences in banking regulation and supervision for the international subsidiary locations and risk of U.S. bank holding companies (BHCs). We find that U.S. BHCs are more likely to operate subsidiaries in countries with weaker regulation and supervision, and that such location decisions are associated with elevated BHC risk and higher contribution to systemic risk. The quality of BHCs' internal controls and risk management play an important role in these location choices and risk outcomes. Overall, our study suggests that U.S. banking organizations engage in cross-country regulatory arbitrage with potentially adverse consequences.

Profit Shifting and Tax Uncertainty

We demonstrate the importance for the potency of profit shifting activity of risk factors related to macroeconomic and fiscal stability in countries where multinational subsidiaries reside. Using firm-level data for 1,241 parent firms from 24 countries and 12,698 subsidiaries in 43 countries, we first identify prevalent profit-shifting in periods (or subsidiaries’ countries) with low macroeconomic risk. Subsequently, we show that even in periods of low macroeconomic risk, profit-shifting is stronger to subsidiaries in countries with stable corporate tax rates over time (low fiscal-risk countries). We contend that especially low fiscal risk is a prerequisite for identifying significant profit-shifting.

Measuring the Economic Effect of Alien Tort Statute Liability

In Kiobel v. Royal Dutch Petroleum Co., the US Supreme Court dramatically restricted the scope of the Alien Tort Statute (ATS), holding that the statute does not permit victims of human rights abuses to sue foreign corporations for violations of international law that took place entirely abroad. We draw on three unique characteristics of the decision to estimate its effect on companies’ valuations. First, we show that extractive industry firms with headquarters abroad experienced larger cumulative abnormal returns following the ruling. By contrast, similar US-based firms—which generally remain subject to ATS liability—did not benefit from the decision. Second, we demonstrate that foreign-based firms benefited both on the final decision date and on the earlier date when the Court slated the case for reargument on the issue of extraterritoriality. Third, we show that this effect varied with the human rights records of host countries: mining firms based abroad with subsidiaries in countries with poor human rights records benefitted most. Although our results cannot resolve debates over the merit of ATS suits, we do show that the Kiobel decision mattered: for foreign firms, it decreased the cost of doing business under regimes with records of human rights violations. (JEL G14, K13, K33, K41, L72)

Las cuatro grandes empresas comercializadoras y los precios internacionales de los alimentos

A large part of the food markets are local or regional; but in situations of production shortages, the international market is what moves the price at the margin and impacts directly on national markets.Four major traders of food grains: Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus, (called the ABCD), control most of the international trade in cereals and grains, and have great influence on determining international prices food. More than a century old, they constitute a most peculiar group of companies. With a low profile, they have changed very little in its long existence. They are among the largest companies worldwide, but are traditionally family-owned firms. In addition to trading, transport and storage activities, they participate in the financing of agricultural production, through the delivery of technology packages and inputs (seeds, fertilizers and agrochemicals); their subsidiaries in numerous countries consume most of the commodities they sell, so their prices are rather transfer prices. They use their own trains and ships to transport the grains; storage is made in their own storage facilities. They are livestock and poultry producers, have great importance in the production of animal feed and biofuel markets; and are owners or lessees of land. They are also financial institutions active in the derivatives markets.

Bail in / bail out (the solvency risk)

Modern banking industries operate in a complex macroeconomic environment which cyclically enters the stages of global economic crises. One of the consequences of these cyclical stages is the serious threat to the financial position of banks. In the case of big, systemically important banks that are mainly internationally active through subsidiaries in different countries, the risk of insolvency has suggested that this could result in much broader implications for the economic and financial sector of the country. In order to prevent the collapse of large, systemically, and beyond, important banks, the European Parliament and the Council adopted a framework for the recovery and resolution of credit institutions and investment firms, which introduced the 'bail-in 'mechanism with the aim of transferring the burden of bank recovery to the private sector.

Regulation of procurement in private international law

Procurements with or without state participation are of single essence, but the first are regulated by civil law in most countries, while the latter lack such regulation. The regulation of procurement in Private International Law creates a particular scientific interest since the nature of business practices of transnational corporations has become increasingly complex; and international tenders organized by transnational corporations to meet the needs of its subsidiaries in different countries do not have relevant regulation. Thus, one of the challenges is to determine the law applicable to the parties in the international tender. For example, the order of seeking remedies is questionable when neither the actual executor under the contract, nor his other side acting through one of the divisions of TNC take a direct part in the international tender, which was organized by the "headquarters" of the TNC and following which the aforementioned contract was signed. This resulted in a dispute on violations of the conditions agreed in the tender. Meanwhile, in the course of an international tender abusive practices, including restricting free competition not only nationally, but also regionally, are possible to occur. In the article, which is a part of the dissertation research, the author analyzes the key concepts of the topic and proposes recommendations to eliminate gaps in the Private International Law regarding the regulation of procurement with a foreign element. The author's suggestions can be used to improve the existing Civil Law of the Russian Federation, further scientific studies within the framework of private international law, including a comprehensive analysis of the development and regulatory activities of TNCs in the world.