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We argue that multinational enterprises (MNEs) not only strive to minimize transaction costs but also attempt to maximize transaction values when interacting with local firms in foreign markets. We put forth our thesis regarding MNE governance structure, that it is contingent on the institutional environment of the host country and the characteristics of the transaction. Specifically, we suggest that MNEs' choice of market, hierarchy or hybrid (joint ventures) form of governance, depends on the interplay between the costs and benefits of a transaction relationship. For high knowledge content products/services, MNEs choose hierarchy when the institutional environment is not well developed. As the institutional environment develops, hybrid replaces hierarchy. However, in a very strong institutional environment, hierarchy again turns out to be optimal for MNEs. For low or no knowledge content products/services, the presence of market is possible in a very advanced institutional environment.

ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: This study seeks to understand how business group affiliation, within firm governance and external governance environment affect firm performance in emerging economies. We examine two aspects of within firm governance – ownership concentration and board independence.Research Findings/Insights: Using archival data on the top 500 Indian and Chinese firms from multiple data sources for 2007, we found that group affiliated firms performed worse than unaffiliated firms, and the negative relationship was stronger in the case of Indian firms than for Chinese firms. We also found that ownership concentration had a positive effect on firm performance, while board independence had a negative effect on firm performance. Further, we found that group affiliation – firm performance relationship in a given country context was moderated by ownership concentration.Theoretical/Academic Implications: This study utilizes an integration of agency theory with an institutional perspective, providing a more comprehensive framework to analyze the CG problems, particularly in the emerging economy firms. Empirically, our findings support, as well as contradict, some of the conventional wisdom, and suggest useful avenues for future research.Practitioner/Policy Implications: This study shows that reforms in general and CG reforms in particular are effective in emerging economies, which is an encouraging sign for policy makers. However, our research also suggests that it may be time for India and China to stop the encouragement for the empire building through group formation in the corporate world. For practioners, our findings suggest that firms need to balance the need for oversight with the need for advice, while selecting independent directors.

What drives the outward foreign direct investments (OFDIs) by emerging market firms (EMFs)? Drawing on a strategy tripod framework, this article proposes a theoretical model to predict OFDI by EMFs from China. Specifically, we use institution- and industry-based views to examine two facets of home country environment, namely, the supportiveness from home government and unfavorableness from home industry, as important determinants of OFDI, and compare the relative strength of these effects. Further, we use the resource-based view to argue that the effect of the home country environment is contingent on the international experience portfolios of EMFs.

PurposeAs multinational companies enter different countries, the extent of cultural unfamiliarity they face depends on their most recent entry. We examine this pattern of added cultural distance between a newly entered target country and the closest previous one and its effect on ownership decisions in each cross-border acquisition (CBA). We also examine the combined effect of added cultural distance and time between successive acquisitions on such decisions.Design/methodology/approachThe sample came from the Thomson Financial Securities Data Corporation (SDC) Platinum database, which spans different source and target countries for a 25-year period (1980–2014). We collected firm- (acquirer and target), industry-, country-, and transaction-level variables from SDC. After merging information from the different sources, the final sample comprised 10,423 CBA observations from 138 target countries.FindingsOur findings reveal that the ownership share decision is affected negatively by added cultural distance but positively by the time between two successive acquisitions. In addition, prior ownership and geographic distance moderate the relationship between added cultural distance and ownership in CBAs.Practical implicationsOur findings suggest that MNCs' managers who consider CBAs need to carefully examine closest previous target information and CBA experience, rather than focusing on direct cultural distance between the focal firm and target firm. Additionally, they should also consider the relevance of key contingency factors.Originality/valueWe disentangle the effects of added cultural distance on CBA ownership decisions and explore the boundary conditions of this relationship.