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Institutional and transaction cost influences on MNEs' ownership strategies of their affiliates: Evidence from an emerging market

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  • Demirbag, Mehmet
  • Glaister, Keith W.
  • Tatoglu, Ekrem

Abstract

This paper examines the impact of institutional, and transaction cost specific variables on MNEs' choice of equity ownership in their foreign affiliates. We consider the determinants of the choice of foreign investors between full ownership (setting up a wholly owned greenfield subsidiary or engaging in a full acquisition) and sharing ownership with a local firm (establishing a greenfield joint venture or making a partial acquisition). Drawing on both transaction cost and institutional theories, a number of hypotheses are developed. Based on a dataset of 6838 foreign affiliates in Turkey, the empirical analysis reveals that institutional variables are important in explaining the equity composition of foreign affiliates. Particularly important in determining equity ownership were found to be political risk, cultural distance, linguistic distance, agglomeration, location and the size of the affiliate. A distinguishing feature of the paper is that we examine the marginal effects of the independent variables in explaining ownership patterns of MNEs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of World Business.

Volume (Year): 42 (2007)
Issue (Month): 4 (December)
Pages: 418-434

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Handle: RePEc:eee:worbus:v:42:y:2007:i:4:p:418-434

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Keywords: Institutional theory Transaction cost theory FDI Joint ventures Wholly owned subsidiaries Turkey;

References

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Cited by:
  1. Valentin Goev & Venelin Boshnakov & Ekaterina Tosheva, 2011. "Foreign Direct Investments In Bulgaria: Main Results Of Foreign Investors Surveys," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 58, pages 387-410, november.
  2. Alvaro, Cuervo-Cazurra, 2011. "Selecting the country in which to start internationalization: The non-sequential internationalization model," Journal of World Business, Elsevier, vol. 46(4), pages 426-437, October.
  3. Hong, Jacky F.L. & Nguyen, Thang V., 2009. "Knowledge embeddedness and the transfer mechanisms in multinational corporations," Journal of World Business, Elsevier, vol. 44(4), pages 347-356, October.
  4. Ahmet H., Kirca, 2011. "The effects of market orientation on subsidiary performance: Empirical evidence from MNCs in Turkey," Journal of World Business, Elsevier, vol. 46(4), pages 447-454, October.
  5. Mellahi, Kamel & Demirbag, Mehmet & Riddle, Liesl, 2011. "Multinationals in the Middle East: Challenges and opportunities," Journal of World Business, Elsevier, vol. 46(4), pages 406-410, October.
  6. Dow, Douglas & Ferencikova, Sonia, 2010. "More than just national cultural distance: Testing new distance scales on FDI in Slovakia," International Business Review, Elsevier, vol. 19(1), pages 46-58, February.
  7. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2014. "Political Risk Spreads," NBER Working Papers 19786, National Bureau of Economic Research, Inc.
  8. Brian Lucey & Colm KEarney & Ciaran MacAnBhaird, 2012. "Culture and capital structure in small and medium sized firms," The Institute for International Integration Studies Discussion Paper Series iiisdp419, IIIS.
  9. Demirbag, Mehmet & Tatoglu, Ekrem & Glaister, Keith W., 2009. "Equity-based entry modes of emerging country multinationals: Lessons from Turkey," Journal of World Business, Elsevier, vol. 44(4), pages 445-462, October.
  10. López-Duarte, Cristina & Vidal-Suárez, Marta M., 2013. "Cultural distance and the choice between wholly owned subsidiaries and joint ventures," Journal of Business Research, Elsevier, vol. 66(11), pages 2252-2261.
  11. López-Duarte, Cristina & Vidal-Suárez, Marta M., 2010. "External uncertainty and entry mode choice: Cultural distance, political risk and language diversity," International Business Review, Elsevier, vol. 19(6), pages 575-588, December.
  12. Karhunen, Päivi & Ledyaeva, Svetlana, 2012. "Corruption Distance, Anti-corruption Laws and International Ownership Strategies in Russia," Journal of International Management, Elsevier, vol. 18(2), pages 196-208.
  13. Yaprak, Attila & Karademir, Bahattin, 2011. "Emerging market multinationals’ role in facilitating developed country multinationals’ regional expansion: A critical review of the literature and Turkish MNC examples," Journal of World Business, Elsevier, vol. 46(4), pages 438-446, October.

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