AIB 2012 Conference Proceedings - Academy of International ...

SUNDAY
Panelists:
Luiz Ricardo Kabbach de Castro, Universitat Autonoma de Barcelona
Ruth Aguilera, University of Illinois at Urbana-Champaign
Rafel Crespi-Cladera, Universitat de les Illes Balears
William Newburry, Florida International University
Susan Perkins, Northwestern University
Armando Borda, Universidad ESAN/ Florida International University
Our panel seeks to discuss different topics on the Latin American business landscape. We start the panel by
looking at Latin American research in the context of the international business literature. As Cuervo-Cazurra
states, "International business research on Latin American firms is limited but growing," and although the
literature is progressing rapidly, there are still areas that need further research. As such, we will pay special
attention on firms' internal governance structures and how it may affect firm performance in countries where
formal institutions are weak, and corporate elites play an important role on defining the "rules of the game."
The panel will cover topics such as the nature of the corporate ownership structure in the seven largest Latin
American economies aiming to understand by which means large shareholders take control of publicly listed
firms (Kabbach-Castro, Aguilera, & Crespí-Cladera); how the ownership structure affect corporate governance
institutional changes in Brazil (Perkins & Zajac); what are the structure, role and evolution of corporate
networks in Argentina and Chile (Salvaj & Lluch); and finally, how business groups diversification and
internationalization affects firm performance (Borda & Newburry). (For more information, please contact: Luiz
Ricardo Kabbach de Castro, Universitat Autonoma de Barcelona, Spain: luisricardo.kabbach@uab.es)
Session: 1.3.4 - Competitive
Track: 7 - Emerging Economies
Governance Mechanisms in Emerging Economies
Presented On: July 1, 2012 - 13:00-14:15
Chair: Ilir Haxhi, University of Amsterdam
The Effect of Ownership Mode Commitment and Cultural Distance on the Extent of Parent Firms' Strategic
Control over Subsidiaries
Markus K. Hödl, WU Vienna
Jonas F. Puck, WU Vienna
Igor Filatotchev, WU Vienna
Hans-Georg Wolff, University of Erlangen-Nuremburg
Previous studies often associated a specific type of ownership mode with the extent of strategic control a parent
firm may have over a foreign subsidiary, suggesting that parent firms should have higher control over whollyowned
subsidiaries (WoS) than international joint ventures (IJVs). Building on multiple agency theory, we argue
that high ownership mode commitment has a negative effect on the extent of control over the foreign
subsidiary. In addition, we argue that cultural distance between the parent firm and the subsidiary moderates
this relationship. We test our hypothesis against data from a sample of 156 foreign subsidiaries in the People's
Republic of China (PRC) and find strong support for our argument. Our findings show that in WoS parent firms
reduce their extent of strategic control, while in IJVs parent firms increase their extent of strategic 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 effect of
cultural distance on the choice of ownership mode. (For more information, please contact: Markus K. Hödl, WU
Vienna, Austria: markus.hoedl@wu.ac.at)
AIB 2012 Conference Proceedings
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