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

Michael A. Sartor*, Paul W. Beamish

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

39 Citations (Scopus)

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 MNEs 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 MNEs preference to invest with a home country partner.

Original languageEnglish
Pages (from-to)346-370
Number of pages25
JournalJournal of International Business Studies
Volume49
Issue number3
DOIs
Publication statusPublished - 1 Apr 2018
Externally publishedYes

Fingerprint

Dive into the research topics of 'Host market government corruption and the equity-based foreign entry strategies of multinational enterprises'. Together they form a unique fingerprint.

Cite this