, Volume 29, Issue 4, pp 949-964
Date: 26 Jun 2010

Corruption and subsidiary profitability: US MNC subsidiaries in the Asia Pacific region

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Abstract

Would multinational corporation (MNC) subsidiaries be more profitable in host countries where corruption is less severe? Would MNC subsidiaries be more profitable in less corrupt countries if they focus on local sales? This paper examines the impact of the level of corruption on the profitability of US MNCs in the Asia Pacific region. Using foreign direct investment (FDI) data archived by the US Bureau of Economic Analysis and corruption data reported by the World Bank, we find that MNC subsidiaries located in countries with a lower level of corruption are more profitable. In addition, MNC subsidiaries with a greater focus on local sales are more profitable when the corruption level is low. This study contributes to the literature by showing that when local sales are important to MNC subsidiaries, a lower level of corruption by host countries positively affects the profitability of the MNC subsidiaries.

The authors are grateful to valuable comments from Mike Peng, Steve Globerman, Daniel Shapiro, and other participants of the APJM Special Issue conference on Managing Corporate Governance Globally: An Asia Pacific Perspective in Vancouver, Canada on October 8–9, 2009.