Ownership Chains in Multinational Enterprises

This study examines how multinational enterprises (MNEs) structure ownership chains to coordinate subsidiaries across multiple national borders. Using a unique global dataset, we first document key stylized facts: 54% of subsidiaries are controlled through indirect ownership, and ownership chains can span up to seven countries. In particular, we find that subsidiaries further down the hierarchy tend to be more geographically distant from the parent and often operate in different time zones. This suggests that the ease of communication along ownership chains is a critical determinant of their structure. Motivated by these findings, we develop a location choice model in which parent firms compete for corporate control of final subsidiaries. When monitoring is costly, they may delegate control to an intermediate affiliate in another jurisdiction. The model generates a two-stage empirical strategy: (i) a trilateral equation that determines the location of an intermediate affiliate conditional on the location of final subsidiaries; and (ii) a bilateral equation that predicts the location of final investment. Our empirical estimates confirm that the ease of communication at the country level significantly influences the location decisions of affiliates along ownership chains. These findings underscore the importance of organizational frictions in shaping global corporate structures and provide new insights into the geography of multinational ownership networks.