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Institutional determinants of domestic and foreign subsidiaries’ performance

Author

Listed:
  • Gugler, Klaus
  • Mueller, Dennis C.
  • Peev, Evgeni
  • Segalla, Esther

Abstract

This article investigates the determinants of subsidiaries’ profitability using a unique dataset of more than 23,000 listed and unlisted subsidiaries worldwide over the period 1994–2005. We find that profitable parent companies are able to transfer some of the intangible assets that make them profitable to their subsidiaries. Our results indicate that good institutions (measured by the Worldwide Governance Indicators) are associated with better performance for companies’ subsidiaries. When we categorize countries in terms of the origins of their legal systems, we also find that this dimension of institutional quality is generally associated with better performance. Controlling for both legal origins and country governance institutions, we find that both sets of institutions are significantly related to subsidiaries’ performance, and that there is an overlap in their explanatory power.

Suggested Citation

  • Gugler, Klaus & Mueller, Dennis C. & Peev, Evgeni & Segalla, Esther, 2013. "Institutional determinants of domestic and foreign subsidiaries’ performance," International Review of Law and Economics, Elsevier, vol. 34(C), pages 88-96.
  • Handle: RePEc:eee:irlaec:v:34:y:2013:i:c:p:88-96
    DOI: 10.1016/j.irle.2013.01.003
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    References listed on IDEAS

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    Cited by:

    1. Saona, Paolo & San Martín, Pablo, 2016. "Country level governance variables and ownership concentration as determinants of firm value in Latin America," International Review of Law and Economics, Elsevier, vol. 47(C), pages 84-95.
    2. Hou, Xiaohui & Wang, Qing, 2016. "Institutional quality, banking marketization, and bank stability: Evidence from China," Economic Systems, Elsevier, vol. 40(4), pages 539-551.
    3. Piotr Trapczynski, 2013. "Determinants Of Foreign Direct Investment Performance – A Critical Literature Review," Oeconomia Copernicana, Institute of Economic Research, vol. 4(2), pages 117-132, June.

    More about this item

    Keywords

    Subsidiary performance; Institutional quality; Origins of legal systems; Transfer of corporate governance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • K0 - Law and Economics - - General

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