Host Market Government Corruption and the Equity-Based Foreign Entry Strategies on MNEs

Michael Sartor, Paul W. Beamish

Research output: Contribution to journalArticle

10 Citations (Scopus)

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.
LanguageEnglish
Pages346-370
JournalJournal of International Business Studies
Volume49
Issue number3
Early online date17 Nov 2017
DOIs
Publication statusPublished - Apr 2018

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Industry
Entry strategy
Government
Equity
Corruption
Foreign entry
Multinational enterprises
Precipitates
Economics
Costs
Uncertainty
Entry mode

Cite this

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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.",
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Host Market Government Corruption and the Equity-Based Foreign Entry Strategies on MNEs. / Sartor, Michael; Beamish, Paul W.

In: Journal of International Business Studies, Vol. 49, No. 3, 04.2018, p. 346-370.

Research output: Contribution to journalArticle

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