Institutional and transaction cost influences on MNEs’ ownership strategies of their affiliates: evidence from an emerging market

Mehmet Demirbag, Keith Glaister, Ekrem Tatoglu

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    161 Citations (Scopus)


    This paper examines the impact of institutional, and transaction cost specific variables on MNEs’ choice of equity ownership in their foreign affiliates. We consider the determinants of the choice of foreign investors between full ownership (setting up a wholly owned greenfield subsidiary or engaging in a full acquisition) and sharing ownership with a local firm (establishing a greenfield joint venture or making a partial acquisition). Drawing on both transaction cost and institutional theories, a number of hypotheses are developed. Based on a dataset of 6838 foreign affiliates in Turkey, the empirical analysis reveals that institutional variables are important in explaining the equity composition of foreign affiliates. Particularly important in determining equity ownership were found to be political risk, cultural distance, linguistic distance, agglomeration, location and the size of the affiliate. A distinguishing feature of the paper is that we examine the marginal effects of the independent variables in explaining ownership patterns of MNEs.
    Original languageEnglish
    Pages (from-to)418-434
    Number of pages17
    JournalJournal of World Business
    Issue number4
    Publication statusPublished - Dec 2007


    • institutional theory
    • transaction cost theory
    • joint ventures
    • FDI
    • wholly owned subsidiaries
    • Turkey

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