Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC
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In: Asia Pacific Journal of Management, Vol. 33, No. 4, 01.12.2016, p. 1075-1105.
Research output: Journal contributions › Journal articles › Research › peer-review
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T1 - Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC
AU - Puck, Jonas
AU - Hödl, Markus K.
AU - Filatotchev, Igor
AU - Wolff, Hans Georg
AU - Bader, Benjamin
PY - 2016/12/1
Y1 - 2016/12/1
N2 - 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.
AB - 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.
KW - Management studies
KW - Control
KW - Cultural distance
KW - Ownership mode
KW - Subsidiaries
UR - http://www.scopus.com/inward/record.url?scp=84969913337&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/2d66793d-51fa-3e27-92b0-3170eb5120c1/
U2 - 10.1007/s10490-016-9471-2
DO - 10.1007/s10490-016-9471-2
M3 - Journal articles
AN - SCOPUS:84969913337
VL - 33
SP - 1075
EP - 1105
JO - Asia Pacific Journal of Management
JF - Asia Pacific Journal of Management
SN - 0217-4561
IS - 4
ER -