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

Mehmet Demirbag, Keith Glaister, Ekrem Tatoglu

    Research output: Contribution to journalArticle

    128 Citations (Scopus)

    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.
    LanguageEnglish
    Pages418-434
    Number of pages17
    JournalJournal of World Business
    Volume42
    Issue number4
    DOIs
    Publication statusPublished - Dec 2007

    Fingerprint

    Emerging markets
    Transaction costs
    Multinational enterprises
    Foreign affiliates
    Ownership
    Greenfield
    Equity ownership
    Subsidiaries
    Institutional variables
    Cultural distance
    Empirical analysis
    Equity
    Institutional theory
    Marginal effects
    Agglomeration
    Partial acquisitions
    Transaction cost theory
    Political risk
    Turkey
    Joint ventures

    Keywords

    • institutional theory
    • transaction cost theory
    • joint ventures
    • FDI
    • wholly owned subsidiaries
    • Turkey

    Cite this

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    Institutional and transaction cost influences on MNEs’ ownership strategies of their affiliates : evidence from an emerging market. / Demirbag, Mehmet; Glaister, Keith; Tatoglu, Ekrem.

    In: Journal of World Business, Vol. 42, No. 4, 12.2007, p. 418-434.

    Research output: Contribution to journalArticle

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