Corporate Governance in the Multinational Enterprise: A Financial Contracting Perspective

Abstract

The aim of this paper is to bring economics-based finance research more into the focus of international business theory. On the basis of an analytical model that introduces financial constraints into incomplete contracting in an international vertical trade relationship, we propose an integrated framework that facilitates the study of the interdependencies between internalization decisions, firm-internal allocations of control rights, and the debt capacity of firms. We argue that the financial constraint of an MNE and/or its supplier should be considered as an important determinant of internal governance structures, complementary to, and interacting with, institutional factors and proprietary knowledge.

Keywords: corporate governance, financial contracting, internationalisation theory and foreign market entry, ownership/control structures

JEL Classification: G234, F23, F12