Fiscal Reforms and Multinational Entry Mode in China
نویسنده
چکیده
The main purpose of this study is to empirically investigate the impact of political hazards on the entry mode choice of multinational investment. Additionally, this study also investigates the response of a multinational firm to contractual hazards in forming a jointventure. The empirical analysis demonstrates that multinational firms respond to political hazards by cooperating with local partners to reduce the risks. The fiscal decentralization in China increases the incentive of local governments to maintain economic prosperity and thus reduces political risks facing multinational firms. Therefore, multinational firms located in regions with higher degrees of fiscal decentralization, namely with higher ratios of local government spending or higher retention ratios of local revenue, tend to obtain more shares of joint venture. Regarding contractual hazards, foreign shares of joint-ventures are found to increase with the percentage of machinery and equipment from the source country and the percentage of technicians and managerial personnel from the source country. The estimates are consistent with the theoretical hypothesis, implying that the share of multinational investment in joint-ventures increases with the risks of asset specificity and technology specificity.
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