Institutions and Multinational Ownership Strategy

27 Pages Posted: 21 Nov 2008  

Ari Van Assche

HEC Montreal; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Galina A. Schwartz

University of California, Berkeley

Date Written: March 1, 2007

Abstract

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.

Keywords: liability of foreignness, international joint venture, contract enforceability, cronyism

JEL Classification: F23, F12

Suggested Citation

Van Assche, Ari and Schwartz, Galina A., Institutions and Multinational Ownership Strategy (March 1, 2007). CIRANO - Scientific Publications No. 2008s-07. Available at SSRN: https://ssrn.com/abstract=1106301 or http://dx.doi.org/10.2139/ssrn.1106301

Ari Van Assche (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Galina A. Schwartz

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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