Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC

Research output: Journal contributionsJournal articlesResearchpeer-review

Authors

  • Jonas Puck
  • Markus K. Hödl
  • Igor Filatotchev
  • Hans Georg Wolff
  • Benjamin Bader

Previous studies often associated a specific type of ownership mode with the extent of control a parent firm may have over (strategic) decision-making in a foreign subsidiary, suggesting that parent firms should have higher control over wholly-owned subsidiaries (WoS) than international joint ventures (IJVs). Building on principal agent theory, we argue that in the Chinese context higher ownership levels do not necessarily have a positive effect on the extent of control over the foreign subsidiary. We further argue that cultural distance between the parent firm and the subsidiary moderates this relationship. We test our hypotheses using data from a sample of 156 foreign subsidiaries in the People’s Republic of China (PRC) and find strong support for our arguments. Our findings show that in WoS parent firms reduce their extent of control, while in IJVs parent firms increase their extent of control. Moreover, we find that extent of control over WoS (IJVs) declines (increases) when cultural distance increases. Our results have significant theoretical implications for international business (IB) research as they challenge existing views with regard to the relationship between ownership mode and control as well as the moderating effect of cultural distance.

Original languageEnglish
JournalAsia Pacific Journal of Management
Volume33
Issue number4
Pages (from-to)1075-1105
Number of pages30
ISSN0217-4561
DOIs
Publication statusPublished - 01.12.2016

    Research areas

  • Management studies - Control, Cultural distance, Ownership mode, Subsidiaries

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