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Effects of ownership structure on the relationship between multinationality and downside risk

Effects of ownership structure on the relationship between multinationality and downside risk The purpose of this paper is to explore how multinationality affects multinational companies’ (MNCs) downside risk and the moderate effects of ownership structure in the setting of emerging markets based on Chinese publicly traded manufacturing MNCs.Design/methodology/approachThe author derives hypotheses based on real options theory and agency theory, and tests hypotheses by using Tobit model and a unique data set of Chinese A-shared publicly traded manufacturing MNCs in the period of 2010–2016.FindingsThe empirical results suggest that multinationality is positively related to downside risk and this effect is subjected to ownership structure for firms in emerging markets. In particular, multinationality of MNCs with a high level of ownership concentration, managerial ownership and institutional ownership is more likely to reduce downside risk.Practical implicationsThe main conclusion of this paper highlights the importance of ownership structure of MNCs in explaining the real options value of multinationality, and conveys to owners of MNCs in China and other emerging markets the need to strengthen firms’ governance if they want to maximize the benefits of multinational operations.Originality/valueThis study extends existing studies by taking ownership structure into consideration and highlighting the importance of agency problem in the examination of multinationality and downside risk, which provides a potential explanation for previous mixed evidence. This study also provides new evidence for the relationship between multinationality and downside risk by using a unique sample from China, an emerging market country. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Cross Cultural & Strategic Management Emerald Publishing

Effects of ownership structure on the relationship between multinationality and downside risk

Zhou, Chao
Cross Cultural & Strategic Management , Volume 26 (3): 21 – Oct 8, 2019
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References (116)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2059-5794
DOI
10.1108/ccsm-10-2018-0172
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to explore how multinationality affects multinational companies’ (MNCs) downside risk and the moderate effects of ownership structure in the setting of emerging markets based on Chinese publicly traded manufacturing MNCs.Design/methodology/approachThe author derives hypotheses based on real options theory and agency theory, and tests hypotheses by using Tobit model and a unique data set of Chinese A-shared publicly traded manufacturing MNCs in the period of 2010–2016.FindingsThe empirical results suggest that multinationality is positively related to downside risk and this effect is subjected to ownership structure for firms in emerging markets. In particular, multinationality of MNCs with a high level of ownership concentration, managerial ownership and institutional ownership is more likely to reduce downside risk.Practical implicationsThe main conclusion of this paper highlights the importance of ownership structure of MNCs in explaining the real options value of multinationality, and conveys to owners of MNCs in China and other emerging markets the need to strengthen firms’ governance if they want to maximize the benefits of multinational operations.Originality/valueThis study extends existing studies by taking ownership structure into consideration and highlighting the importance of agency problem in the examination of multinationality and downside risk, which provides a potential explanation for previous mixed evidence. This study also provides new evidence for the relationship between multinationality and downside risk by using a unique sample from China, an emerging market country.

Journal

Cross Cultural & Strategic Management – Emerald Publishing

Published: Oct 8, 2019

Keywords: Ownership concentration; Ownership structure; Managerial ownership; Multinationality; Institutional ownership; Downside risk

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