Asia Pacific Journal of Management

, Volume 29, Issue 4, pp 949–964 | Cite as

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

Article

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.

Keywords

Corruption Multinational corporation (MNC) Institutional environment Subsidiary Profitability 

References

  1. Allen, L., & Pantzalis, C. 1996. Valuation of the operating flexibility of multinational corporations. Journal of International Business Studies, 27: 633–653.CrossRefGoogle Scholar
  2. Boddewyn, J. J. 1988. Political aspects of MNE theory. Journal of International Business Studies, 19: 341–363.CrossRefGoogle Scholar
  3. Clerides, S., Lach, S., & Tybouts, J. 1998. Is learning by exporting important? Micro-dynamic evidence from Columbia, Mexico, and Morocco. Quarterly Journal of Economics, 113: 903–947.CrossRefGoogle Scholar
  4. Dam, K. W. 2006. The law-growth nexus: The rule of law and economic development. Washington, DC: Brookings Institution Press.Google Scholar
  5. Djankov, S., Ganser, T., McLiesch, C., Ramalho, R., & Shleifer, A. 2009. The effects of corporate taxes on investment and entrepreneurship. Unpublished working paper, Harvard University, Cambridge, MA.Google Scholar
  6. Doh, J., Rodriguez, P., Uhlenbruck, K., Collins, J., & Eden, L. 2003. Coping with corruption in foreign markets. Academy of Management Executive, 17(3): 114–127.CrossRefGoogle Scholar
  7. Dunning, J. H. 1998. Location and the multinational enterprise: A neglected factor?. Journal of International Business Studies, 29(1): 45–66.CrossRefGoogle Scholar
  8. Globerman, S., & Shapiro, D. 2003. Governance infrastructure and US foreign direct investment. Journal of International Business Studies, 34(1): 19–39.CrossRefGoogle Scholar
  9. Grossman, G. M., & Helpman, E. 1991. Trade, knowledge spillovers, and growth. NBER working paper no. 3485, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  10. Habib, M., & Zurawicki, L. 2002. Corruption and foreign direct investment. Journal of International Business Studies, 33(2): 291–308.CrossRefGoogle Scholar
  11. Kaufmann, D., Kraay, A., & Mastruzzi, M. 2008. Governance matters VII: Aggregate and individual governance indicators for 1996–2007. World Bank Policy Research working paper no. 4654, World Bank, Washington, DCGoogle Scholar
  12. Kogut, B., & Kulatilaka, N. 1994. Operating flexibility, global manufacturing, and the option value of a multinational network. Management Science, 40: 123–139.CrossRefGoogle Scholar
  13. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. 1998. Law and finance. Journal of Political Economy, 106(6): 1113–1155.CrossRefGoogle Scholar
  14. Lee, S., & Makhija, M. 2009. Flexibility in internationalization: Is it valuable during an economic crisis?. Strategic Management Journal, 30: 537–555.CrossRefGoogle Scholar
  15. Lee, S., & Oh, K. 2007. Corruption in Asia: Pervasiveness and arbitrariness. Asia Pacific Journal of Management, 24(1): 97–114.CrossRefGoogle Scholar
  16. Lenway, S., Morck, Y., & Yeung, B. 1996. Rent seeking, protectionism, and innovation in the American steel industry. The Economic Journal, 106: 410–421.CrossRefGoogle Scholar
  17. Luo, Y., & Park, S. H. 2001. Strategic alignment and performance of market-seeking MNCs in China. Strategic Management Journal, 22: 141–155.CrossRefGoogle Scholar
  18. Makhija, M. 1993. Government intervention in the Venezuelan petroleum industry: An empirical investigation of political risk. Journal of International Business Studies, 24: 531–555.CrossRefGoogle Scholar
  19. Makino, S., Isobe, T., & Chan, C. M. 2004. Does country matter?. Strategic Management Journal, 25: 1027–1043.CrossRefGoogle Scholar
  20. Mauro, P. 1995. Corruption and growth. Quarterly Journal of Economics, 110(3): 681–712.CrossRefGoogle Scholar
  21. Meschi, P.-X. 2009. Government corruption and foreign stakes in international joint ventures in emerging economies. Asia Pacific Journal of Management, 26(2): 241–261.CrossRefGoogle Scholar
  22. Nachum, L., & Zaheer, S. 2005. The persistence of distance? The impact of technology on MNE motivations for foreign investment. Strategic Management Journal, 26: 747–767.CrossRefGoogle Scholar
  23. Peng, M. W., Sun, S. L., Pinkham, B., & Chen, H. 2009. The institution-based view as a third leg for a strategy tripod. Academy of Management Perspective, 23: 63–81.CrossRefGoogle Scholar
  24. Peng, M. W., Wang, D. Y. L., & Jiang, Y. 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39: 920–936.CrossRefGoogle Scholar
  25. Rangan, S. 1998. Do multinationals operate flexibly?: Theory and evidence. Journal of International Business Studies, 29: 217–237Google Scholar
  26. Robertson, C., & Watson, A. 2004. Corruption and change: The impact of foreign direct investment. Strategic Management Journal, 25: 385–396.CrossRefGoogle Scholar
  27. Rose-Ackerman, S. 1999. Corruption and government: Causes, consequences, and reform. London: Cambridge University Press.CrossRefGoogle Scholar
  28. Salomon, R. 2006. Spillovers to foreign market participants: Assessing the impact of export strategies on innovative productivity. Strategic Organization, 4: 135–164.CrossRefGoogle Scholar
  29. Salomon, R., & Shaver, M. 2005. Export and domestic sales: Their interrelationship and determinants. Strategic Management Journal, 26: 855–871.CrossRefGoogle Scholar
  30. Shleifer, A., & Vishny, R. W. 1993. Corruption. Quarterly Journal of Economics, 108(3): 599–617.CrossRefGoogle Scholar
  31. Song, J. 2002. Firm capabilities and technology ladders: Sequential foreign direct investments of Japanese electronics firms in East Asia. Strategic Management Journal, 23: 191–210.CrossRefGoogle Scholar
  32. Voyer, P., & Beamish, P. 2004. The effect of corruption on Japanese foreign direct investment. Journal of Business Ethics, 50: 211–224.CrossRefGoogle Scholar
  33. Wei, S. J. 2000. How taxing is corruption on international investors?. The Review of Economics and Statistics, 82: 1–11.CrossRefGoogle Scholar
  34. Wooldridge, J. M. 2002. Econometric analysis of cross section and panel data. Cambridge: MIT Press.Google Scholar
  35. Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38: 341–363.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.School of Management, SM43University of Texas at DallasRichardsonUS

Personalised recommendations