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Host market government corruption and the equity-based foreign entry strategies of multinational enterprises

Published on Apr 1, 2018in Journal of International Business Studies7.72
· DOI :10.1057/s41267-017-0115-7
Michael A. Sartor2
Estimated H-index: 2
(Queen's University),
Paul W. Beamish59
Estimated H-index: 59
(UWO: University of Western Ontario)
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Abstract
Abstract While extant theory suggests that the pervasiveness of host market government corruption should influence the equity ownership decisions of foreign-investing multinational enterprises (MNEs), empirical research has produced inconclusive results. We leverage insights from transaction cost economics to advance an uncertainty-oriented framework which can be used to explain the impact of host market government corruption on the equity-based entry strategies of MNEs. We disaggregate government corruption into two distinct components (grand corruption and petty corruption). We propose that grand and petty corruption precipitate different types of uncertainty (environmental and behavioral) which motivate MNEs to vary their equity-based foreign entry strategies (entry mode and partnering). Hypotheses pertaining to the entry strategies of MNEs under conditions of more pervasive grand and petty corruption are developed and tested with a sample of 643 Japanese investments in 30 countries between 2004 and 2007. We find that the main effect of grand corruption and the interaction between grand and petty corruption significantly impact a MNE’s entry mode. Further, while more pervasive grand corruption increases the likelihood that a MNE will engage in a joint venture investment with a host country partner, we find that an increase in petty corruption heightens a MNE’s preference to invest with a home country partner.
  • References (130)
  • Citations (10)
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References130
Newest
Published on Jul 1, 2017in Journal of International Business Studies7.72
Han T. J. Smit11
Estimated H-index: 11
(EUR: Erasmus University Rotterdam),
Enrico Pennings19
Estimated H-index: 19
(Tinbergen Institute),
Sjoerd van Bekkum5
Estimated H-index: 5
(Tinbergen Institute)
This article shows how growth options are affected by two types of external uncertainty: Transactional uncertainty that stems from institutional voids and increases transaction costs, and economic uncertainty that arises from the business environment. We theorize that these two types of uncertainty have opposing effects: A firm’s growth option value (proportional to firm value) is negatively associated with transactional uncertainty, but positively associated with economic uncertainty. In an emp...
Published on Apr 1, 2017in Journal of International Business Studies7.72
Brian C. Pinkham6
Estimated H-index: 6
(UWO: University of Western Ontario),
Mike W. Peng60
Estimated H-index: 60
(UTD: University of Texas at Dallas)
Abstract Extending the literature on institutional voids, we introduce theory from law that highlights the ability of firms to choose the laws and enforcement mechanisms that govern their international joint ventures (IJVs). Specifically, firms may overcome institutional voids by borrowing institutions via binding international commercial arbitration (BICA) rather than relying on host-market institutions. Leveraging an institution-based view, we develop a theoretical framework to articulate the ...
Published on Jan 1, 2016in Journal of World Business5.79
Alvaro Cuervo-Cazurra32
Estimated H-index: 32
(NU: Northeastern University)
I analyze corruption in international business, presenting a critical assessment of the topic and providing suggestions for future research. I argue that corruption creates a laboratory for expanding international business studies because its illegal nature, the differences in perception about illegality, and the variation in the enforcement of laws against bribery across countries challenge some of the assumptions upon which arguments have been built, i.e., that managers can choose appropriate ...
Published on May 1, 2015in Journal of International Business Studies7.72
Ilya Cuypers8
Estimated H-index: 8
(Singapore Management University),
Gokhan Ertug9
Estimated H-index: 9
(Singapore Management University),
Jean-François Hennart41
Estimated H-index: 41
We study the effects of linguistic distance and lingua franca proficiency on the equity stake taken by acquirers from 67 countries in 59,092 acquisition targets in 69 host countries. We theorize and find that acquirers take lower equity stakes in foreign targets when linguistic distance and differences in lingua franca proficiency between them are high, and take higher stakes when the combined lingua franca proficiency of the parties is high. We also find that linguistic and cultural distance re...
Published on Jan 1, 2015in Journal of World Business5.79
Virginia Hernández4
Estimated H-index: 4
(ISCIII: Instituto de Salud Carlos III),
María Jesús Nieto16
Estimated H-index: 16
(ISCIII: Instituto de Salud Carlos III)
This paper analyzes the relation between institutional regulative distance and the choice of international entry mode. The study contributes to existing literature by considering the relative positions of the origin and destination countries on this relation, examining the possibility that institutional distance may exert an asymmetric effect. The results, using a database of European firms and multilevel analysis techniques, indicate that entry in countries with lower levels of regulatory devel...
Published on Dec 1, 2014in Journal of International Business Studies7.72
Michael A. Sartor2
Estimated H-index: 2
(UWO: University of Western Ontario),
Paul W. Beamish59
Estimated H-index: 59
(UWO: University of Western Ontario)
The literature on innovation offshoring has focused on the dichotomous choice between two distinct investment strategies – captive offshoring and outsourced offshoring. We use the concept of organizational control to investigate how differences in the informal institutions that prevail in the home and host countries influence multinational enterprise (MNE) strategy (or, the organizational control decision) with respect to subsidiaries established to offshore innovation. While the relationship be...
Published on Oct 1, 2014in Journal of International Business Studies7.72
Klaus E. Meyer6
Estimated H-index: 6
(China Europe International Business School),
Yuan Ding17
Estimated H-index: 17
(China Europe International Business School)
+ 1 AuthorsHua Zhang2
Estimated H-index: 2
(China Europe International Business School)
State-owned (SO) enterprises are subject to more complex institutional pressures in host countries than private firms. These institutional pressures arise from a weak legitimacy of “state ownership” in some countries, which arises from a combination of ideological conflicts, perceived threats to national security, and claimed unfair competitive advantage due to support by the home country government. These institutional pressures directed specifically at SO firms induce them to adapt their forei...
Published on Jul 1, 2014in Journal of World Business5.79
Andreas P. Petrou7
Estimated H-index: 7
(CUT: Cyprus University of Technology),
I.C. Thanos8
Estimated H-index: 8
(Glas.: University of Glasgow)
This study adopts a resource perspective to explore a non-linear relationship between corruption and two measures of bank foreign market commitment, the capital invested and the share of equity, on a sample of 131 bank entries in forty host countries. Our findings support a U-shaped relationship providing evidence of the “grabbing hand” view at low to moderate levels of corruption and, supporting the “helping hand” view at high levels of it. In addition, market-seeking motives are found to have ...
Published on Mar 1, 2014in Journal of Business and Psychology2.58
Jeremy Dawson33
Estimated H-index: 33
(University of Sheffield)
Many theories in management, psychology, and other disciplines rely on moderating variables: those which affect the strength or nature of the relationship between two other variables. Despite the near-ubiquitous nature of such effects, the methods for testing and interpreting them are not always well understood. This article introduces the concept of moderation and describes how moderator effects are tested and interpreted for a series of model types, beginning with straightforward two-way inter...
Published on Jan 1, 2014in Chicago Journal of International Law
Rachel Brewster1
Estimated H-index: 1
(U of C: University of Chicago)
Table of ContentsI. Introduction 86II. A New Wave of International Economic Law Obligations 90A. Trade and Investment Treaties 90B. Market-Engaging Agreements 92III. Current Anti-Corruption Measures 94A. Economic Justifications for Anti-Corruption Law 94B. The FCPA and OECD Treaty 97C. Criteria for Evaluating Domestic Enforcement Efforts 101IV. Effects on the Interstate Enforcement of Anti-Corruption Measures........104A. Traditional Means of Interstate Enforcement 104B. Current Assessments of O...
Cited By10
Newest
Published on Nov 1, 2019in Journal of World Business5.79
Jonas Gamso2
Estimated H-index: 2
(ASU: Arizona State University),
Roy C. Nelson2
Estimated H-index: 2
(ASU: Arizona State University)
Abstract This study explores whether partnering with the World Bank’s International Finance Corporation (IFC) protects foreign investors from aggressive actions by host countries’ governments. Building on the obsolescing bargaining model, we theorize that host states fear that hostile actions towards IFC-supported investments will damage their relationships with the World Bank. Within this context IFC support deters host government aggression towards investments. We assess our argument using cou...
Published on Apr 3, 2019in Journal of International Business Studies7.72
Weiguo Zhong1
Estimated H-index: 1
(PKU: Peking University),
Weiguo Zhong1
Estimated H-index: 1
(PKU: Peking University)
+ 1 AuthorsHaibin Yang14
Estimated H-index: 14
(CityU: City University of Hong Kong)
While research has acknowledged the importance of political risks in affecting multinational companies’ behavior and performance outcomes, the roles of political agents in this process have largely been ignored. This study explores one important dimension of political risks caused by politician turnover at the sub-national level and examines its influence on the performance of foreign subsidiaries. We contend that policy uncertainty arising from politician turnover adversely affects the performa...
Published on Feb 28, 2019in Journal of International Business Studies7.72
Arkangel M Cordero (UTSA: University of Texas at San Antonio), Stewart R. Miller17
Estimated H-index: 17
(UTSA: University of Texas at San Antonio)
We develop a theoretical framework to explain how political party tenure affects MNE entries into an economy. We leverage insights from the upper echelon and public administration literatures to argue that there is a curvilinear relationship between political party tenure and MNE entries. Moreover, we argue that political parties with an excessive tenure are less responsive to MNEs and more corrupt. Therefore, we further explain the mediating effects of government bureaucratic responsiveness and...
Abstract This analysis of International Business (IB) corruption literature identifies gaps and inconsistencies in how corruption is perceived or deliberated in top academic journals. The reviewed articles tend to focus on one of the three key themes of IB corruption (Contributing factors, Consequences, and Combating) and are categorised into the six sub-domains of the IB framework. The content of the articles is categorised into the respective themes and discussed in relation to underpinning th...
Published on Jun 1, 2019in Journal of International Business Studies7.72
Michael Nippa1
Estimated H-index: 1
(Free University of Bozen-Bolzano),
Jeffrey J. Reuer41
Estimated H-index: 41
(CU: University of Colorado Boulder)
International joint ventures (IJVs) are an important type of international strategic alliance (ISA) and have been studied by scholars for decades, resulting in a plethora of empirical studies, publications, and reviews, yet an inadequate accumulation of knowledge exists, as a closer look reveals. Much more than providing a summary and critical assessment of past contributions, this paper develops an expansive research agenda based upon a deep understanding of past research and comprehensive fram...
Published on Apr 4, 2019in Journal of Business Ethics3.80
Michael A. Sartor2
Estimated H-index: 2
(Queen's University),
Paul W. Beamish59
Estimated H-index: 59
(UWO: University of Western Ontario)
Corporate anti-corruption initiatives can make a substantial contribution towards curtailing corruption and advancing efforts to achieve the United Nations’ Sustainable Development Goals. However, researchers have observed that underdeveloped assumptions with respect to the conceptualization of corruption and how firms respond to corruption risk impeding the efficacy of anti-corruption programs. We investigate the relationship between the perceived level of corruption in foreign host countries a...
Published on Feb 1, 2019in Journal of International Business Studies7.72
Larissa Rabbiosi9
Estimated H-index: 9
(CBS: Copenhagen Business School),
Grazia D. Santangelo18
Estimated H-index: 18
(University of Catania)
Abstract Multinational enterprises (MNEs) operating in more corrupt host (than home) countries face actual costs related to processing information for decision-making, and lack of local legitimacy, and potential reputation and legal costs in case of corruption scandals. Drawing on the organizational perspective of corruption, we argue that greater subsidiary autonomy helps minimize these costs. However, headquarter (HQ)–subsidiary communication weakens the autonomy-based advantages for minimizin...
Published on Nov 1, 2018in Australian Economic History Review0.50
Geoffrey Jones24
Estimated H-index: 24
(Harvard University),
Rachael Comunale1
Estimated H-index: 1
(Harvard University)
This article examines how businesses perceived political risk in South Asia and Latin America over the last half century. Employing data from an oral history database at Harvard Business School, the article identifies five major sources of political risk: macroeconomic and policy turbulence, excessive bureaucracy, political instability, corruption, and violence. Marked regional differences were identified in perceptions and responses to risks. Macroeconomic and policy turbulence was the biggest ...
Nnamdi Oguji1
Estimated H-index: 1
(University of Vaasa),
William Y. Degbey4
Estimated H-index: 4
(UTU: University of Turku),
Richard A. Owusu7
Estimated H-index: 7
(LNU: Linnaeus University)
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