Ownership structure and OFDI by EMNES: the moderating effects of international experience and migrant networks

Abstract

PurposeThis study investigates the effect of ownership structure – ownership concentration and firm ownership – on outward foreign direct investment (OFDI) by emerging market multinational enterprises (EMNEs), and further explores the moderating effects of international experience and migrant networks on this relationship.Design/methodology/approachData of Chinese MNEs listed on Shenzhen and Shanghai stock exchanges between 2005 and 2016 are used. The empirical analysis is based on the negative binomial regression model.FindingsThe empirical results reveal a significant inverted-U relationship between ownership concentration and OFDI by EMNEs. State ownership is found to have a positive effect on OFDI by EMNEs. Both international experience and migrant networks strengthen the inverted-U relationship between ownership concentration and OFDI as well as the positive effect of state ownership on OFDI by EMNEs.Practical implicationsEMNEs need to maintain a moderate ownership concentration when conducting OFDI, and they are supposed to make full use of their own international experience and focus on migrant networks of the host country. Policy-makers in emerging economies need to better create a fair business environment for enterprises.Originality/valueCombining agency theory and the resource-based view, this study integrates ownership structure, firm-level heterogeneous resources – international experience and country-level heterogeneous resources – migration networks into a framework to study OFDI by EMNEs, which expands the scope of research in international business.

Migrant networks, international experience, and OFDI by EMNEs: Evidence from China

“…Following prior studies (Chen et al, 2020;Yi et al, 2021), we take host country's economic scale (GDP), economic stability (Inflation), market potential (Growth), natural resource endowment (Nr), firm's separation of powers (Sep), shareholding concentration (Top1), firm size (Size), cash ratio (Cfo), firm leverage (Lev), firm age (Age), institutional distance (Inst), geographical distance (Dis), and cultural distance (CD) as control variables. The relevant variables and their definitions are shown in Table 1.…”

Host country corruption and headquarters-subsidiary relationships in emerging economies

“…Since the local legitimacy may affect the L-MNCs' legitimacy in their home country (Kostova and Zaheer, 1999), subsidiaries are often forced to adopt the practices and operations employed in the headquarter (home country). Subsidiary managers may resist such internal pressures when the practices promoted by HQ run counter to the local expectations (Kostova and Roth, 2002; Williamson and Wan, 2018; Quer et al , 2018; Tran, 2021; Yi et al , 2021), further forcing HQ to adopt a detachment strategy.…”

“…Researchers (e.g. Egelhoff, 1993; Luo and Bu, 2018; Yi et al , 2021) argue that a centralized decision-making strategy not only increases the information processing cost but also forces L-MNCs to provide in-depth critical information related to the local operations. It may not be possible for L-MNCs to comprehend and provide complete information to its headquarters.…”

“…In a state of widespread corruption, L-MNCs need to acquire the local tacit knowledge and understanding of regulations and the business atmosphere for supporting their decision-making. Such knowledge and information may be better understood by local businesses, creating a challenging situation for foreign subsidiaries operating in those countries (Cuervo-Cazurra, 2006; Tran, 2021; Yi et al , 2021). For example, interpersonal relations with a pivotal role in business negotiations can be observed in deeply rooted cultures such as Korean, Chinese and Indian.…”

Investments in Times of Pandemics: An Approach by the SAPEVO-M-NC Method

“…The consequences of the new coronavirus pandemic, caused by the new coronavirus in the most diverse sectors of the Brazilian economy, are overwhelming and its effects in the medium and long term are still difficult to measure [1] [2]. Uncertainties result in the flight of foreign capital and influence investments by national organizations in companies in more developed countries and with varied and consolidated corporate governance structures, thus seeking to mitigate investment risks [3]. During the decisionmaking process, the evaluator will come across different information, often conflicting with each other [4][5] [6].…”