How does corruption distance affect MNCs' entry ownership strategies and entry performance? A combined lens of transaction cost economics and institutional theory

by Bo Ning

Institution: Victoria University of Wellington
Year: 2017
Keywords: Corruption distance; Transaction cost economics; TCE; Institutional theory
Posted: 02/01/2018
Record ID: 2154927
Full text PDF: http://hdl.handle.net/10063/6205


Purpose Government determines the rules of the game that influence the strategies and actions of a firm. Government corruption increases the transaction costs and generates institutional pressures for MNCs. Corrupt countries are often economically attractive emerging markets, which are strategically important for foreign entrants. However, little research has been carried out as to discussing the role of market entry strategies in MNCs entering corrupt host markets. In this thesis, we focus on how firms strategically respond to corrupt environments, as well as how they succeed in the corrupt foreign markets.Theory/Framework We first scrutinized two fundamental theoretical underpinnings that are pertinent to this research, namely, transaction cost economics (TCE) and the institutional view. Specifically, not only does corruption pervasiveness affect MNCs entry decisions, corruption arbitrariness and institutional forces also has important implications. Through a TCE lens, we decomposed the arbitrary corruption and focus on country-level arbitrariness, i.e., a lack of political constraint and political instability in a host country. From an institutional view, we analysed the influence of both external and internal institutional forces, that is, the legitimacy pressure from a host government, as well as the internal pressure driven by the ethical identity of a parent firm (based on the organizational identity theory) in the context of corruption. Drawing on the blended perspectives, we filled in the research gaps by constructing a conceptual model that connects corruption distance with entry ownership strategies, and the subsequent entry performance.Methodology We manually extracted data regarding foreign market entry behaviours of US listed MNCs from periodical databases using the Event History Analysis (EHA). We ran empirical analysis to demonstrate how corruption and related factors affect MNCs entry strategies, and how these strategies produce different entry performance.By using logistic models, the first study examined the impact of corruption distance on MNCs strategic ownership choices between joint ventures (JVs) and wholly owned subsidiaries (WOSs), and how corruption arbitrariness and institutional forces respectively moderate the corruption-strategy relationship.The second study employed Heckman two-stage models to examine how corruption distance, selected moderators and entry strategy fit enhance entry performance.Key findings Empirical findings in Study 1 suggest that as corruption distance increases, MNCs are more likely to choose the JV mode. They tend to choose strategic alliances when entering a host country with fewer political constraints. The results also indicate that both lack of political constraint and political instability negatively moderate the positive relationship between corruption distance and MNCs strategic preference for a JV entry. From an institutional view, the findings indicate that regulatory pressure driven by political intervention, as well asAdvisors/Committee Members: Fam, Kim, Yang, Zhihin.