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The Research On Foreign Firms’ Return On Assets And Equity Ownership Levels From The Institutional Environment Perspective

Posted on:2016-12-03Degree:DoctorType:Dissertation
Country:ChinaCandidate:J G JiangFull Text:PDF
GTID:1109330467995185Subject:Western economics
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With the global and China’s reform going into new step, to discuss foreign firms’ performance in China takes significant importance. Meanwhile, institutional environment between transitional economy such as China and developed country not only result into the difference of each other, but also mainly case the sub-national regions’difference. According to organizational new institutionalism, on the one hand, organization is a productive system; On the other hand, it is a social system. The social system takes rational, natural and open essence, which makes MNEs cannot separate from the effect of host country’s institutional environment in transitional economy. Institutional environment provides new analysis on the MNEs and their action in emerging economy, and is the most popular perspective (Wright et al.,2005; Xu&Meyer,2013). Based on the organizational new institutionalism, institutional environment focus that organizations must conform to institutional constrains to gain legitimacy, and it forms the stone of organizational survival and development. Thus, organizational performance is depended on institutional environment. However, compared to indigenous firms, to conform to the institutional isomorphism for MNEs in the host county is more difficult. Moreover, the order of institutional isomorphism between transitional economy and developed county takes large difference for MNEs. Hence, to analysis MNEs performance in transitional economy such as China with the institutional environment take strong explanatory power both of theory and practice.This paper breaks through the traditional framework, and MNEs’performance in transitional economy is decomposed into two dimensions:return on asset and equity ownership level, based on the view that MNEs’performance should be consistent with the strategy (Luo,1998). Return on asset is corresponding to MNEs’profit maximization principle, while the equity ownership level is relative to MNEs’survival of structural forms. Under these conditions, the changing root of China’s MNEs’institutional environment is originally concluded both from the type of economic development change and bilateral political relationship, and MNEs return on assets is investigated by the type of the economic development change, also, the direct and indirect effect of bilateral political relationship as a higher level of institution between county combine with firm’s internal resource is discussed. As to MNEs’equity ownership level, Chinese domestic firms" M&A institutional power are decomposed into the pull of external marketization and the push of internal ownership, thus the institutional effects are investigated under mean distribution of equity ownership level, as well as being extended under different quintile distribution. Moreover, the theory about the consistence of MNEs’equity ownership level and return on assets is developed by the institutional threshold effection. The main conclusions are shown as follows.Firstly, both of the return on assets and equity ownership level of MNEs in China result from the regional allocation effects, and not simply track the national allocation effect. The regional allocation effects do not take essential change with the home country of investment, which is robust for different source of investment. Secondly, For MNEs in China, conforming to the change of China’s economic development type is helpful for their return on assets. However, the return on assets takes different respondence to the concrete path, which gets more complicate under different source of investment. Thirdly, the empirical tests about bilateral political environment with the perspective of bilateral political relationship showns that: bilateral political relationship, as a high level of bilateral institutional arrangement takes important means for the return on asset of China’ s MNEs. It not only has direct effect, but also has moderation effect on MNEs’internal resource (eg. marking capabilities, slack, and age). Fourthly, the empirical tests which are based on the marketization and internal ownership by combing the equity ownership level of M&A in China find that:An SOE target of M&A significantly reduces the equity ownership level, and marketization takes a U shaped relation with equity ownership level of M&A. However, these effction may be not consistent with different source of investment, ownership, or the distribution of equity ownership level. Fifthly, given the economic institutional environment, MNEs’ return on assets and equity ownership level take opposite relation in some degree, and return on assets cannot be improved by enhancing equity ownership level for MNEs in China. However, once the threshold effect of economic institutional environment is considered, the opposite relation can be changed into compatible relation.This paper extends previous researches from the following points. Firstly, it develops models about the allocation effects of MNEs’ return on assets and equity ownership level in transitional economy (eg.China) with the equilibrium risk completely dispersed. Secondly, the framework on the MNEs’institutional environment during China’s economic transition periods is developed, by combing the economic developing changes and bilateral political environment, and MNEs’ return on assets is explained under the framework, which forms a new perspective. Thirdly, theory about the effect of institutional environment on MNEs’equity ownership level based on the distribution is developed, with more suitable to the context of transitional economics. Fourthly, institutional threshold effect was originally used to achieve the compatibility between MNEs’ ownership level and return on assets, which is even more reasonable to explain the compatibility in transitional economics. These innovations form the theoretical value and practical meanings.
Keywords/Search Tags:Institutional environment, Legitimacy, Foreign firms, Return on assets, Equityownership level
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