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Host market government corruption and the equity-based foreign entry strategies of multinational enterprises

Journal of International Business Studies volume 49, pages 346–370 (2018)Cite this article

Abstract

While extant theory suggests that the pervasiveness of host market government corruption should influence the equity ownership decisions of foreign-investing multinational enterprises (MNEs), empirical research has produced inconclusive results. We leverage insights from transaction cost economics to advance an uncertainty-oriented framework which can be used to explain the impact of host market government corruption on the equity-based entry strategies of MNEs. We disaggregate government corruption into two distinct components (grand corruption and petty corruption). We propose that grand and petty corruption precipitate different types of uncertainty (environmental and behavioral) which motivate MNEs to vary their equity-based foreign entry strategies (entry mode and partnering). Hypotheses pertaining to the entry strategies of MNEs under conditions of more pervasive grand and petty corruption are developed and tested with a sample of 643 Japanese investments in 30 countries between 2004 and 2007. We find that the main effect of grand corruption and the interaction between grand and petty corruption significantly impact a MNE’s entry mode. Further, while more pervasive grand corruption increases the likelihood that a MNE will engage in a joint venture investment with a host country partner, we find that an increase in petty corruption heightens a MNE’s preference to invest with a home country partner.

Résumé

Si la théorie existante suggère que l’omniprésence de la corruption du gouvernement du pays d’accueil doit influencer les décisions de propriété au niveau du capital des entreprises multinationales (EMN) qui investissent à l’étranger, la recherche empirique produit des résultats contrastés. Nous mettons à profit les éclairages de l’économie des coûts de transaction pour avancer un modèle orienté vers l’incertitude qui peut être utilisé pour expliquer l’impact de la corruption du gouvernement du marché d’accueil sur les stratégies d’entrée capitalistiques des EMN. Nous distinguons la corruption du gouvernement en deux composantes différentes (forte corruption et faible corruption). Nous proposons que la forte et la faible corruptions déclenchent différents types d’incertitude (environnementale et comportementale) qui motivent les EMN à varier leurs stratégies d’entrée capitalistiques sur les marchés étrangers (mode d’entrée et partenariat). Les hypothèses relatives aux stratégies d’entrée des EMN, dans les conditions d’une forte ou faible corruption plus généralisée, sont développées et testées sur un échantillon de 643 investissements japonais dans 30 pays entre 2004 et 2007. Nous constatons que le principal effet de la forte corruption et l’interaction entre la forte et la faible corruptions influencent de manière significative le mode d’entrée d’une EMN. Par ailleurs, si une forte corruption plus généralisée accroît la probabilité que l’EMN s’engage dans un investissement de joint-venture avec un partenaire du pays d’accueil, nous constatons qu’un accroissement d’une faible corruption augmente la préférence d’une EMN pour investir avec un partenaire du pays d’origine.

Resumen

Mientras que la teoría existente sugiere que la omnipresencia de la corrupción del gobierno en el mercado anfitrión debe influir en las decisiones de participación de propiedad en empresas multinacionales que invierten en el extranjero, la investigación empírica ha producido resultados inconclusos. Nos apalancamos en los entendimientos de la economía de los costos de transacción para avanzar un marco orientado a la incertidumbre que pueda usarse para explicar el impacto de la corrupción del gobierno del mercado anfitrión en las estrategias de entrada basadas en participación de capital de las multinacionales. Desagregamos la corrupción del gobierno en dos componentes distintos (gran corrupción y menor corrupción). Proponemos que la corrupción grande y menor precipitan diferentes tipos de incertidumbre (ambiental y comportamental) las que motivan a las multinacionales a variar sus estrategias de entrada basadas en participación de capital (modo de entrada y asociación). Las hipótesis relativas a las estrategias de entrada de las multinacionales bajo condiciones de más corrupción grande y menor omnipresente son desarrolladas y testeadas con una muestra de 643 inversiones japonesas en 30 países entre el 2004 y el 2007. Encontramos que el efecto principal de la gran corrupción y la interacción entre la gran y menor corrupción impactan significativamente el modo de entrada de las empresas multinacionales. Además, en tanto que la gran corrupción sea más omnipresente se aumenta la probabilidad que la multinacional participe en inversiones conjuntas (joint venture) con un socio en el país anfitrión, encontramos que un aumento en la corrupción menor aumenta la preferencia de la multinacional para invertir con un socio en el país de origen.

Resumo

Embora a teoria existente sugira que a onipresença da corrupção governamental no mercado de origem deva influenciar as decisões de propriedade de capital das empresas multinacionais (MNEs) estrangeiras investidoras, a pesquisa empírica produziu resultados inconclusivos. Aproveitamos insights sobre a economia de custos de transação para aprimorar um modelo orientado para a incerteza que pode ser usado para explicar o impacto da corrupção governamental no mercado de destino nas estratégias de entrada de MNEs baseadas em participação no capital. Desagregamos a corrupção governamental em dois componentes distintos (grande corrupção e pequena corrupção). Nós propomos que a grande e a pequena corrupção precipitem diferentes tipos de incerteza (ambiental e comportamental) que motivam as MNEs a variar suas estratégias de entrada baseadas em participaçào no capital (modo de entrada e parceria). Hipóteses relativas às estratégias de entrada das MNEs em condições de corrupção grande e pequena generalizadas são desenvolvidas e testadas com uma amostra de 643 investimentos japoneses em 30 países entre 2004 e 2007. Achamos que o principal efeito da grande corrupção e a interação entre grande e pequena corrupção impactam significativamente o modo de entrada de uma MNE. Além disso, enquanto a grande corrupção generalizada aumenta a probabilidade de uma MNE se envolver em um investimento tipo joint venture com um parceiro do país anfitrião, achamos que um aumento na corrupção pequena aumenta a preferência de uma MNE para investir com um parceiro do país de origem.

概要

虽然现有理论认为,东道国市场的政府腐败的普遍性应影响外商投资跨国企业(MNEs)的股权所有权决策,但实证研究出现了不确定的结果。我们利用交易成本经济学的洞见推进了一个不确定性导向的框架,它可以用来解释东道国市场的政府腐败对跨国企业基于股权的进入战略的影响。我们将政府腐败分解为两个不同的组成部分(大腐败和小腐败)。我们提出,大小腐败会导致不同类型的不确定性(环境的和行为的),从而促使跨国企业改变其基于股权的外国进入战略(进入模式和伙伴关系)。在出现更普遍的大小腐败的条件下,我们提出了有关跨国企业进入战略的假设,并用2004年至2007年间在30个国家的643个日本投资项目的样本进行了测试。我们发现,大腐败的主要效应和大小腐败之间的互动对跨国企业的进入模式影响显著。此外,虽然更普遍的大腐败增加跨国企业与东道国合作伙伴进行合资投资的可能性,但我们发现小腐败的增加使跨国企业与本国合作伙伴进行投资的偏爱提高。

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Figure 1
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Figure 3

Notes: High petty and low petty refer to petty corruption pervasiveness one standard deviation above and below the mean for petty corruption pervasiveness. Likewise, high grand and low grand refer to grand corruption pervasiveness one standard deviation above and below the mean for grand corruption pervasiveness.

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Acknowledgements

Our sincere thanks to the Area Editor Mona Makhija and two anonymous JIBS reviewers for providing constructive and valuable input during the review process.

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Authors and Affiliations

  1. Smith School of Business, Queen’s University, 143 Union Street W., Kingston, K7L 3N6, Canada

    Michael A Sartor

  2. Ivey Business School, Western University, London, Canada

    Paul W Beamish

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  1. Michael A Sartor
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Correspondence to Michael A Sartor.

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Accepted by Mona Makhija, Area Editor, 16 July 2017. This article has been with the authors for four revisions.

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Sartor, M.A., Beamish, P.W. Host market government corruption and the equity-based foreign entry strategies of multinational enterprises. J Int Bus Stud 49, 346–370 (2018). https://doi.org/10.1057/s41267-017-0115-7

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  • DOI: https://doi.org/10.1057/s41267-017-0115-7

Keywords

  • corruption
  • bribery
  • uncertainty
  • transaction cost economics
  • entry mode
  • joint ventures