Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/106996 
Year of Publication: 
2015
Series/Report no.: 
IWH Discussion Papers No. 3/2015
Publisher: 
Leibniz-Institut für Wirtschaftsforschung Halle (IWH), Halle (Saale)
Abstract: 
In our analysis, we consider the distribution of decision power over financing and investment between MNEs' headquarters and foreign subsidiaries and its influence on the foreign affiliates' financial restrictions. Our research results show that headquarters of multinational enterprises have not (yet) moved much decision power to their foreign subsidiaries at all. We use data from the IWH FDI Micro Database which contains information on corporate governance structures and financial restrictions of 609 enterprises with a foreign investor in Hungary, Poland, the Czech Republic, Slovakia, Romania and East Germany. We match data from Bureau van Dijk's AMADEUS database on financial characteristics. We find that a high concentration of decision power within the MNE's headquarter implicates high financial restrictions within the subsidiary. Square term results show, however, that the effect of financial constraints within the subsidiary decreases and finally turns insignificant when decision power moves from headquarter to subsidiary. Thus, economic policy should encourage foreign investors in the case of foreign acquisition of local enterprises to leave decision power within the enterprise and in the case of Greenfield investment to provide the newly established subsidiaries with as much power over corporate governance structures as possible.
Subjects: 
corporate governance
financial restrictions
multinational firms
European post-transition economies
JEL: 
F23
G11
G34
R11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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