Organization of Multinational Activities and Ownership Structure

We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration

Organization of Multinational Activities and Ownership Structure

We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration.Multinationals; Joint ventures; Technology spillovers; Distance; Horizontal and vertical investments; Ownership structure

Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance

We explore the nature of Business Groups, that is network-like forms of hierarchical organization between legally autonomous firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we find that business groups account for a significant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we distinguish between an affiliate vs. a group-level index of vertical integration, as well as an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. We relate these metrics to host country institutional characteristics, as well as to the performance of affiliates across business groups. Conditional on institutional quality, a negative correlation exists between vertical integration and organizational complexity in defining the boundaries of business groups. We also find a robust (albeit non-linear) positive relationship between a group's organizational complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes

Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms

Intangible assets are one major source of profit shifting opportunities due to a highly intransparent transfer pricing process. Our paper argues that multinational enterprises (MNEs) optimize their profit shifting strategy by locating shifting–relevant intangible property at affiliates with a low statutory corporate tax rate. Using panel data for European MNEs and controlling for unobserved time–constant heterogeneity between affiliates, we find that the lower a subsidiary’s tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern

Ethics and taxation : a cross-national comparison of UK and Turkish firms

This paper investigates responses to tax related ethical issues facing busines

MNCs’ Ownership Advantage, Developing Countries, And New Regionalism

Since the mid-1980s, more regional trade arrangements (RTAs) have arisen between developing and developed countries than before. The evidence shows that MNCs are the major driving force of the new regionalism. The puzzle presented in this paper is why MNCs would like to propel new RTAs between developing and developed countries. The paper believes that the emergence and development of new regionalism is, to a great extent, related to the situation that MNCs wish to enter into developing countries markets. However, it is not easy for MNCs to access to this developing market. MNCs still have to be faced with challenges brought about by both their more and more public-good-like ownership advantages and the increasing cost of producing ownership advantages. If MNCs did not extend their market to the developing countries, they would not spread the cost of producing ownership advantages. However, if they did, they would face the risk that their property of public goods is freely ridden by developing countries due to no effective intellectual property protection (IPP). Therefore, MNCs have to produce much demand for building up new RTAs including developing countries to protect their ownership advantages, especially when they meet the difficulties in multinational negotiation in IPP.Regional Trade Agreements, Multi-National Corporations, East Asia

Strategic Asset Seeking and Innovation Performance: The Role of Innovation Capabilities and Host Country Institutions

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Determinants of firms' inputs sourcing choices: the role of institutional and regulatory factors. ESRI WP599, September 2018

Using the theoretical framework of global sourcing with firm heterogeneity, we examine determinants of inputs sourcing choices of manufacturing firms established in the EU countries. To this purpose, we combine information on the ownership structure and company accounts from the Orbis data set with input-output data from the World Input-Output Tables (WIOT) and with information on institutional and regulatory factors at country level provided by international organisations. Our research findings indicate that manufacturing firms that source inputs intra-firm via foreign direct investment (FDI) across EU countries are larger, more productive, more intensive in tangible and intangible capital and less intensive in skills than manufacturing firms that source inputs at arm’s length. The probability of integrating inputs by manufacturing firms across EU countries is positively linked with the strength of legal systems, flexibility of labour markets and negatively linked to corporate tax rates and financial development in host countries. Less efficient insolvency procedures are associated with a higher probability of sourcing inputs intra-firm via FDI relative to arm’s length sourcing. The probability of sourcing inputs via FDI is negatively linked to sectoral restrictions to FDI and positively linked to the impact of service regulations on downstream industries

The Impact of FDI on Innovation in Target Firms

This paper contributes to the ongoing debate on the welfare effects of foreign direct investment by investigating the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and mediumsized German firms. After controlling for endogeneity and selection bias, it is found that foreign takeovers have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as the share of sales from product innovations is not significantly affected by a foreign takeover for a given amount of innovation efforts. Hence, the estimation results do not show any evidence of significant technology spillovers through foreign direct investment in form of a higher innovation success.Multinational enterprises, mergers and acquisitions, innovation