Research On The Ownership Strategy Of Overseas Subsidiaries Based On Corporate Governance And Corporate Performance

Investing in a foreign country is a challenging process for multinationalenterprises. One major strategic consideration is the degree of ownership in theoverseas direct investment in the overseas subsidiary. This has been a prominent issuefor scholars in international business and there have been several streams of literatureon this topic. Two streams of research are particularly insightful in understanding theownership strategy of multinational enterprises from the point of view of corporategovernance. It is the agency theory and the institutional theory. In this study, weexamine the issue of ODI ownership of multinational enterprises along these twotheoretical streams. The extensive literature proposes to examine the situation in othercountries outside the United States, Japan, Europe. Therefore, this study collected dataof Chinese listed companies which had overseas subsidiaries, data were compiledfrom the2010annual reports of public listed firms in China.This paper studies the impact of the corporate performance and corporategovernance on the company’s overseas subsidiaries ownership strategy, especially theimpact of political relations. Currently, most of the literature researchednon-state-owned companies without the role of government ignoring the impact of thepolitical relations on strategic choices. Therefore, we took the political relations as amajor factor to study the impact of political relations of the parent companyexecutives and the role of the government on overseas subsidiary ownership strategy.The study found that corporate performance which was measured through ROA havea significant positive effect on the overseas subsidiary ownership strategy; thegovernment controlled companies are more likely to opt for a lower equity in their overseas subsidiaries; Firms that have a higher representation of outside directors orthe executives have government working experience are more likely to opt for a lowerownership in their overseas subsidiary; Firms that have a higher ownership frominstitutional investors and the executive political relations did not have a significanteffect on the overseas subsidiary ownership strategy.This paper has three outstanding contributions. First, we study the impact ofgovernment ownership and government control on the company’s FDI ownershipstrategy. Secondly, this study advances construct development and constructmeasurement in the research related to government. Finally, this paper advances theempirical work in the research on outward investment by firms from emergingeconomies.