Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment

In this study, using dynamic panel data, we investigated the influences of the home country economic environment and parent bank condition on the credit risk of foreign banks in Central and Eastern European (CEE) countries. We concentrated on the international transmission of credit risk through the internal capital market of multinational banks. Our theoretical assumptions follow studies that document how the parent bank condition and home country macroeconomic environment affect lending in subsidiaries in CEE countries. However, our results go one step further. We provide evidence that these relationships are reflected in subsidiaries’ credit risk in CEE countries. Our results suggest that the size and profitability of the parent bank have negative influences, while the liquidity and credit risk of the parent bank have positive influences on the subsidiaries’ credit risk. Moreover, the GDP growth in the parent bank’s country has a negative effect on the credit risk of the subsidiary, while the lending rate and liquidity in the parent bank country cause growth in the credit risk. These results indicate a new channel of international risk transfer from parent bank countries to host countries through foreign-owned banks.     

Patterns and performance of multinational and domestic food wholesale firms

This is a study of comparative efficiencies of domestic Puerto Rican firms and subsidiaries of multinational corporations, all food wholesalers, operating under similar environmental dimensions during a period of distinct opportunity for total market expansion and an unexpected threat to market shares. Using a linear model, the relationship between value added and operating expenses demonstrates that foreign subsidiaries were distinctly superior in resource management initially but that by the last year of the study local management showed greater improvement in lowering operating expenses and a tendency to imitate the models of technological and managerial efficiencies of the foreign firms.     

Foreign location decisions by US transnational firms: An empirical study

The paper aims at identifying the variables that are significant in determining the choice of host countries for manufacturing subsidiaries of US transnational firms. The approach that is taken is to relate variables that on the basis on a priori theoretical reasoning influence foreign location decisions, with (a) total market penetration by US firms and (b) the choice these firms make between exporting to their foreign markets and on site manufacturing. Location decisions are viewed as emerging from the interaction of characteristics typical to the industry of the transnational firm and factors specific to potential host countries. Particular attention is devoted to finding out whether locational choices and market shares are interdependent. The sample of observations under investigation consists of the activities of US majority-owned subsidiaries, classified in fourteen industry groupings and operating twenty countries. Sub-samples of countries are also studied. It is found that for the European countries, in particular EEC members, market penetration is dependent on local manufacturing.     

Globalisation,industrial diversification and productivity growth in large European R&D companies

This paper aims to assess the impact of both geographic and industrial diversification of economic activities on the productivity performance of large European R&D Multinational Enterprises (MNEs). Based on the worldwide subsidiaries of these firms, we measure the performance of the firms according to their level of industrial diversification and globalisation that we proxy with the presence and importance of subsidiaries in the EU, North America and Asia–Pacific regions. The sample consists of large R&D firms that represent about 80 % of total European R&D. In general, the results indicate a positive impact from globalisation on firms’ R&D productivity, especially in the US, while a negative impact for industrial diversification is found.     

The Corrosive Effect of Offshore Financial Centers on Multinational Firms’ Disclosure Strategy

Abstract

This study investigates whether U.S. multinational firms with subsidiaries located in offshore financial centers (OFCs) (i.e. offshore firms) are more likely to be opaque in their voluntary disclosure relative to U.S. multinationals without such subsidiaries (non-offshore firms). We use management earnings forecasts to capture corporate voluntary disclosure. Consistent with the opportunism view, but inconsistent with the efficiency argument, our results (including robustness checks) show that offshore firms are less likely to issue earnings forecasts, disclose forecasts less frequently, exhibit a stronger tendency to withhold bad news forecasts, and release less precise forecasts than non-offshore firms. Moreover, of the three distinct dimensions of OFCs’ institutional environment, namely, low taxation, lax regulation, and secrecy policy, each plays a role in negatively shaping firms’ disclosure strategy. Thus, OFCs’ institutional features exacerbate the opacity that plagues firms seeking to avoid taxes via their OFC subsidiaries. Our results are consistent with the notion that, beyond the scope of taxes, multinational firms’ use of OFCs has a corrosive effect on market information dynamics. Hence, OFCs have a much wider impact on the U.S. economy as well as other major economies than just tax avoidance or evasion.     

Fiscal decentralization and multinational firms’ ownership: evidence from China

China’s fiscal decentralization increases the incentive for local governments to maintain economic prosperity and improve institutional environments for multinational firms. This study investigates the impact of fiscal decentralization on the ownership shares of multinational firms in China. Multinational firms located in regions with higher degrees of fiscal decentralization are found to own larger shares of their foreign subsidiaries. This result is consistent under various robustness checks, including instrumental variables estimations. The finding suggests that multinational firms respond to local fiscal decentralization by increasing their participation in investment. This study therefore provides additional evidence for the beneficial effect of fiscal decentralization on China’s economic growth by highlighting the risk-mitigating role of fiscal decentralization.     

The effects of financial liberalization on productivity: Evidence from India’s manufacturing sector

Using a panel of India’s registered manufacturing firms and both economy-wide and firm-level financial data, we investigate the effects of India’s financial liberalization on the productivity of its manufacturing sector in the 1990s and 2000s. Our dynamic panel analysis shows that the series of financial liberalization policies/measures, at both the macro and micro levels, significantly enhanced the productivity of the manufacturing sector. Total factor productivity increased for all firms, including those owned by the state government, with greater gains for the firms in the private and foreign sectors. Our results suggest that policies favoring financial liberalization should be pursued further in order for India to foster higher economic growth.     

Vive les différences? Voice in French MNCs' overseas workplaces: a comparative study of voice in French,German and US subsidiaries in the UK

Foreign-owned firms help to disseminate management practices across UK companies; this includes the ability of indigenous firms to learn improved human resource management (HRM) practices from leading foreign companies. Analysing the transfer of HRM policies forms an important strand of the international HRM and comparative capitalisms literatures; however, large-scale, comparative studies of voice patterns in German, US and, in particular, French subsidiaries in the UK are limited. This paper draws on a major survey that includes the, to date, largest sample of French MNC subsidiaries. It does not simply identify the existence of different kinds of voice mechanisms, but examines how these different practices come together in the implementation of subsidiaries' voice policies. This enables the detection of subtle, but important, differences in the subsidiaries' voice practices. French subsidiaries are significantly less likely to pursue a partnership approach to voice than their German and US counterparts. French and US establishments are significantly more likely to adopt a ‘bleak house’ approach than German ones. Importantly, these key differences only emerge at a fine-grained level of analysis that examines how subsidiaries implement voice practices.     

Modeling the performance of US direct investment in Japan: Some empirical estimates

Foreign firms' direct investments in Japan increased from about $930 million in 1984 to $2.2 billion in 1987, and are still increasing at a rapid rate. Most of these investments come from the United States and Europe. In this paper a short-run model for the performance of a foreign parent firm's subsidiary in Japan is presented. The model is based on theories presented by Hymer, Caves, Buckley and Casson, among others, and consists of two equations: one for profitability and the other for growth. Duality is used to relate a parent firm's activities to its subsidiary firm's profitability. The model is estimated using data for US firms' subsidiaries in the Japanese chemical industry. We find that for jointly owned subsidiaries (joint ventures), imports from US parent firms and the R&D spending by both US and Japanese parent firms are major determinants of profitability and growth. US firms' fully owned subsidiaries, however, exhibit considerably different profit and growth behavior than their jointly owned counterparts. Because of the small sample sizes used, it is not possible to ascertain the sources of the observed differences.     

Eastern European Economic Integration and Foreign Direct Investment

Economic transition in Eastern Europe should generate market growth. In addition, current discussions on economic integration and the development of a free-trade area in Eastern Europe will improve market accessibility. These two forces will significantly affect the strategies by which external firms will choose to supply markets in Eastern Europe. This paper examines the ways in which supply strategy is likely to change. We show that both market growth and improved market accessibility will lead the external firms to switch from exporting to foreign direct investment. However, market growth is likely to lead to dispersed investment in the growing economies, whereas increased market accessibility, by establishing an integrated regional bloc in Eastern Europe, is more likely to lead to concentrated investment plus infra-regional exports to the remainder of the regional bloc. The switch from exporting to local production through foreign direct investment will favor consumers through lowered prices but will harm national producers by depressing profit margins.     

从FCF看中国外贸均衡发展

全球经济危机迫使中国经济降低了对国外市场的依赖程度。制造业也同样必须适应国际需求的变化。外国子公司的加工出口容易受到西方需求放缓的影响,而中国的出口企业却在转型进入活跃的新兴市场中处于有利地位。同时,中国的一般进口正日益增长。亚洲国家扩大了其国内市场的份额,欧洲国家也留有强势地位,而北美国家却失去了自己的市场。中国成为了区域经济增长的动力。在中国的进口及工业生产中,外资企业起到了越来越重要的作用。中国对外国直接投资的政策与确定外国伙伴进入其国内市场的汇率政策至少是同等重要的。     

From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter?

This paper presents estimates of the long-term impact of various sources of knowledge (R&D performed by the business sector, the public sector and foreign firms) on multifactor productivity growth of 16 countries from 1980 to 1998. The main results show that the three sources of knowledge are significant determinants of long-term productivity growth. Further evidence suggests that several factors determine the extent to which each source of knowledge contributes to productivity growth. These factors are the absorptive capability, the origin of funding, the socioeconomic objectives of government support, and the type of public institutions that perform R&D.     

Global Engagement and Returns Volatility

This paper finds that a greater reliance on foreign market sales increases the volatility of firms’ stock returns, using high‐frequency data for publicly listed Japanese manufacturing firms over the period 2000–10. The two margins of global engagement we consider, namely, exports and sales via foreign affiliates (horizontal foreign direct investment), have both a positive and economically significant effect on firm‐level volatility. We find, however, that increasing the intensity of sales through foreign affiliates has a stronger effect on volatility than a similar change in export intensity. We also uncover evidence consistent with the notion that firms’ need to use external finance to cover the substantial costs involved in reaching foreign consumers can be an important channel through which firms’ participation in international markets increases their exposure to economic uncertainty.     

Building a Strong Foothold in an Emerging Market: A Link Between Resource Commitment and Environment Conditions*

ABSTRACT This study examines how MNEs align resource commitment with environmental conditions (challenges and opportunities) when they invest in a foreign emerging market. MNEs often face a dilemma in allocating resources to this environment: without this commitment, they cannot build a strong competitive foothold; yet with over‐commitment, there is excessive economic exposure. Our analysis of MNEs in a major emerging market suggests that resource commitment is an inverse function of market uncertainty and this inverse link is stronger for less strategically proactive MNEs. Resource commitment is also an increasing function of market opportunities and this function is stronger for firms emphasizing demand‐side (as opposed to cost‐side) gains. In addition, in a highly volatile industry, resource commitment is negatively associated with cultural distance, but in a relatively stable industry, it is positively associated with cultural distance. And finally, as foreign subsidiaries become older, the influence of cultural distance on resource commitment is weakened.     

High-investment HR values and firm performance among local firms and U.S. MNCs’ subsidiaries in South Asia: a comparative study

Grounded in institutional theory, this study investigates the differential adoption and internalization of high-investment human resource (HR) values by local companies and by subsidiaries of US firms located throughout South Asia; and the impact of these HR values on firms’ performance. In line with our predictions, results suggest that US subsidiaries have a greater rate of adoption of high-investment HR values compared to local South Asian firms. Contrary to our predictions, however, both types of firms are similar in the level of internalization of their respective HR values. Finally, while greater levels of high-investment HR value adoption is associated with firm performance across the board, this relationship tends to be stronger for US MNCs’ subsidiaries compared to local South Asian companies. Theoretical and practical implications for the transfer and diffusion of high-investment HR values in institutionally and culturally distant contexts are discussed.     

Institutional distance,host country and international business experience,and the use of parent country nationals

This study examines how the institutional distance between a host country and a home country influences foreign subsidiary staffing, and how overseas business experience moderates the effect of institutional distance. Hypotheses regarding the effect of institutional distance on foreign subsidiary staffing are empirically tested using a sample of 2,980 foreign subsidiaries of Japanese firms. This study shows that although the ratio of parent country nationals to subsidiary employees decreases when firms face greater institutional distance, the absolute number of parent country nationals assigned to the subsidiary increases. This study also shows that firms with more overseas business experience replace host country nationals with parent country nationals when there is greater institutional distance.     

Costly external finance,reallocation, and aggregate productivity

Empirical studies document that resource reallocation across production units plays an important role in accounting for aggregate productivity growth in the US manufacturing. Financial market frictions could distort the reallocation process and hence may hinder aggregate productivity growth. This paper studies the quantitative impact of costly external finance on aggregate productivity through resource reallocation across firms with idiosyncratic productivity shocks. A partial equilibrium model calibrated to the US manufacturing data shows that costly external finance causes inefficient output reallocation from high productivity firms to low productivity firms and as a result leads to a 1 percent loss in aggregate TFP.     

Firm performance and the political economy of corporate governance: survey evidence for Bulgaria,Hungary, Slovakia and Slovenia

Using survey data for 220 traditional manufacturing firms over 7 years of transition and 4 Central Eastern Europe (CEE) countries, we find firms that produced for the EU market under planning consistently outperform those that produced for the CMEA market. Within the previously CMEA market, the best firms were selected to outside privatisation and outperformed insider/state owned firms. Outside privatisation was resisted in EU oriented firms and ownership was found to have no effect on performance. Path dependent demand shocks and political constraints on the sequencing of state firms to private ownership determine the relationship between firm performance and ownership structure during transition.     

Should we worry about the decline of the public corporation? A brief survey of the economics and external effects of the stock market

In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market’s primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be efficiently achieved. The main economic roles of the stock market’s secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery and to provide diversification opportunities. Positive external effects from an active stock market may arise for consumers, labor and private firms due to increased corporate investment, more socially responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.     

Parent cultural control of foreign subsidiaries through organizational acculturation: a longitudinal study

Organizational acculturation refers to changes in the work values of host-country employees in foreign subsidiaries. Although many multinational corporations practise cultural control of global operations, organizational acculturation has attracted very little academic research. In the present study, the subjects are Hong Kong Chinese managers employed in subsidiaries of multinational corporations from a European country. Longitudinal research was conducted over three years among an 'acculturation' panel, a control panel and a benchmark panel. The findings showed that organizational acculturation may have occurred in some of the work values measured. Implications of these findings for international firms are discussed in detail.