Institutions and Multinational Ownership Strategy
Ari Van Assche
HEC Montreal; Center for Interuniversity Research and Analysis on Organization (CIRANO)
Galina A. Schwartz
University of California, Berkeley
March 1, 2007
CIRANO - Scientific Publications No. 2008s-07
This paper examines the impact of institutions on a multinational firm's ownership strategy. We develop an international joint venture (IJV) model in which a multinational firm and its local partner both can undertake costly ex post actions to increase their revenue share specified by the ex ante IJV contract. The model captures the effects of two institutional features on the optimal IJV ownership structure: contract enforceability and cronyism. We introduce the IJV model into an industry equilibrium framework to analyze the impact of institutions on a multinational firm's choice between forming an IJV or setting up a wholly-owned subsidiary.
Number of Pages in PDF File: 27
Keywords: liability of foreignness, international joint venture, contract enforceability, cronyism
JEL Classification: F23, F12
Date posted: November 21, 2008
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