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Decision-Making Power in Foreign Subsidiaries and its Effect on Financial Constraints: An Analysis for Selected European Transition Economies on the Basis of the IWH FDI Micro Database 2013

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  • Felix Noth
  • Andrea Gauselmann

Abstract

This article analyzes whether the distribution of decision-making power between the headquarters and foreign subsidiaries of multinational enterprises (MNEs) affects the foreign affiliates’ financial constraints. The findings show that not much decision-making power has as yet been moved from headquarters to foreign subsidiaries in European post-transition economies. The high concentration of decision-making power within the MNE’s subsidiary points toward higher financial constraints. However, a nonlinear effect is found, which suggests that financial constraints within the subsidiary only increase with more decision-making power when the power granted to the subsidiary is at a low level. For subsidiaries that already have autonomy in decision-making, granting more power in this regard has no effect on financial constraints.

Suggested Citation

  • Felix Noth & Andrea Gauselmann, 2016. "Decision-Making Power in Foreign Subsidiaries and its Effect on Financial Constraints: An Analysis for Selected European Transition Economies on the Basis of the IWH FDI Micro Database 2013," Eastern European Economics, Taylor & Francis Journals, vol. 54(6), pages 459-472, November.
    • Handle: RePEc:mes:eaeuec:v:54:y:2016:i:6:p:459-472
    DOI: 10.1080/00128775.2016.1194214
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    References listed on IDEAS

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    1. Joan Farre-Mensa & Alexander Ljungqvist, 2016. "Do Measures of Financial Constraints Measure Financial Constraints?," Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 271-308.
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    Cited by:

    1. Jiří Schwarz & Martin Pospíšil, 2018. "Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 56(2), pages 99-121, March.

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