Firm Ownership Preferences and Host Government Restrictions: An Integrated Approach
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Abstract.lWo approachesmay explainhow multinationalenterprises (MNEs) select ownershipstructuresfor subsidiaries.The first arguesthat MNEs preferstructuresthat minimizethe transaction costs of doing business abroad. The second argues that ownershipstructuresare determinedby negotiations with host governments,whose outcomes depend on the bargainingpower of the firm. This paper presentsa frameworkintegratingthese two approachesand uses statistical methods to separatetheir effects empirically. The statisticalanalysissupportsan importanthypothesisof the bargainingschool-that attractivedomesticmarketsincreasethe relative power of host governments.But it finds no support for other hypotheses of this school, such as those predicting that firms in marketing- and R&D-intensiveindustries have more bargainingpower than others. These latter factors were apparentlymore importantin determiningfirm ownershippreferences. Futhermore, the paper measures when government ownership restrictionsdeter firm entry, concluding that relatively large firms, and those with high intra-systemsales are deterredmore than others. In recent years, there has been a renewed interest in the determinants of ownership structures of foreign subsidiaries. The basic question of when and why multinational enterprises (MNEs) form joint ventures abroad is being addressed with a refined set of tools and with new theories. This atthe is AssistantProfessorof BusinessAdministration *BenjaminGomes-Casseres HarvardUniversity.He holdstheB.A. GraduateSchoolof BusinessAdministration, degreefromBrandeisUniversity,theM.P.A.degreefromPrincetonUniversity,and the D.B.A. degreefromHarvardUniversity.His relatedarticleson joint ventures haveappearedin theJournalof EconomicBehaviorandOrganization andtheSloan focuson themanagement R eview. H iscurrent r esearch andconsulting Management of internationaltransfersof technologyand theireffects on competitiveness. I receivedvaluablecommentson this researchfromLouisT. Wells,Jr.,DonaldR. Lessard,Robert Schlaifer,DennisJ. Encarnation,StephenJ. Kobrinand threeanonymousreferees.The researchwas fundedby the HarvardBusinessSchool'sDivisionof Research.Harvard'sMultinationalEnterprise gavemeaccessto theirdata. ProjectandtheStrategicPlanningInstitutein Cambridge,Massachusetts, The viewspresentedherearemine. Received:August1988;Revised:December1988& March& May 1989;Accepted:May 1989. 1
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FIRST QUARTER1990
renewedinterestis partlydue to two developments:(1) a new conception of the role of ownershipin internationalbusiness;and (2) a betterunderstandingof the processof negotiationbetweenMNEs and host country governments.Thesetwo new developments,however,havenot been integratedinto one framework.This articleattemptsto do that. Inthelastdecade,numerousauthorshavesuccessfullyusedtransactioncost ideas to analyze the role of ownershipin internationalb
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