IDEAS home Printed from https://ideas.repec.org/a/eee/iburev/v8y1999i2p197-211.html
   My bibliography  Save this article

MNE internal capital markets and subsidiary strategic independence

Author

Listed:
  • Mudambi, Ram

Abstract

It has been suggested that the primary function of headquarters in a multi-divisional enterprise is to run an internal capital market in which scarce project finance is transferred from lagging units to those, which have strategic promise. Such a headquarters role is particularly relevant in multinational enterprises (MNEs). It is proposed that the granting of strategic independence to subsidiaries may reduce the ability of headquarters to control their resources and thereby reduce the efficiency of the internal capital market. This is likely to have adverse effects, reducing and perhaps reversing the 'localisation' benefits of subsidiary strategic independence. Using a cross-sectional data set of UK subsidiaries of non-UK MNEs, strong evidence is found for the working of internal capital markets. It appears that subsidiary strategic independence does impede the working of these markets.

Suggested Citation

  • Mudambi, Ram, 1999. "MNE internal capital markets and subsidiary strategic independence," International Business Review, Elsevier, vol. 8(2), pages 197-211, April.
    • Handle: RePEc:eee:iburev:v:8:y:1999:i:2:p:197-211
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969593198000456
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Julian Birkinshaw, 1996. "How Multinational Subsidiary Mandates are Gained and Lost," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(3), pages 467-495, September.
    2. Hood, Neil & Young, Stephen & Lal, David, 1994. "Strategic evolution within Japanese manufacturing plants in Europe: UK evidence," International Business Review, Elsevier, vol. 3(2), pages 97-122, June.
    3. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    4. Kendall Roth & Allen J Morrison, 1992. "Implementing Global Strategy: Characteristics of Global Subsidiary Mandates," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(4), pages 715-735, December.
    5. Lamont, Owen, 1997. "Cash Flow and Investment: Evidence from Internal Capital Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 83-109, March.
    6. Mark Casson, 1994. "Why are Firms Hierarchical?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 1(1), pages 47-76.
    7. Julian M Birkinshaw & Allen J Morrison, 1995. "Configurations of Strategy and Structure in Subsidiaries of Multinational Structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(4), pages 729-753, December.
    8. Mark Casson, 1987. "The Firm and the Market: Studies on the Multinational Enterprise and the Scope of the Firm," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031299, April.
    9. Peter J. Buckley & Martin J. Carter, 1998. "The Economics of Business Process Design in Multinational Firms," Palgrave Macmillan Books, in: International Business, chapter 9, pages 217-245, Palgrave Macmillan.
    10. Hyun-Han Shin & Rene M. Stulz, 1996. "An Analysis of Divisional Investment Policies," NBER Working Papers 5639, National Bureau of Economic Research, Inc.
    11. Mats Forsgren & Ulf Holm & Jan Johanson, 1995. "Division Headquarters Go Abroad ‐ A Step In The Internationalization Of The Multinational Corporation," Journal of Management Studies, Wiley Blackwell, vol. 32(4), pages 475-491, July.
    12. S. D. Chapman, 1985. "British-Based Investment Groups Before 1914," Economic History Review, Economic History Society, vol. 38(2), pages 230-247, May.
    13. Richard A. Bettis & Vijay Mahajan, 1985. "Risk/Return Performance of Diversified Firms," Management Science, INFORMS, vol. 31(7), pages 785-799, July.
    14. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lee, Hyoungjin & Chung, Chris Changwha & Beamish, Paul W., 2019. "Configurational characteristics of mandate portfolios and their impact on foreign subsidiary survival," Journal of World Business, Elsevier, vol. 54(5), pages 1-1.
    2. Dellestrand, Henrik & Kappen, Philip, 2011. "Headquarters Allocation of Resources to Innovation Transfer Projects within the Multinational Enterprise," Journal of International Management, Elsevier, vol. 17(4), pages 263-277.
    3. Pearce, Robert, 1999. "The evolution of technology in multinational enterprises: the role of creative subsidiaries," International Business Review, Elsevier, vol. 8(2), pages 125-148, April.
    4. Henry Wai-chung Yeung & Jessie Poon & Martin Perry, 2001. "Towards a Regional Strategy: The Role of Regional Headquarters of Foreign Firms in Singapore," Urban Studies, Urban Studies Journal Limited, vol. 38(1), pages 157-183, January.
    5. Lunnan, Randi & Meyer, Klaus & Mudambi, Ram & Yang, Qin, 2023. "The impact of knowledge and financial resource flows for MNE strategy: A typology of subsidiary roles," International Business Review, Elsevier, vol. 32(6).
    6. Julia Manea & Robert Pearce, 2006. "MNEs’ strategies in Central and Eastern Europe: key elements of subsidiary behaviour," Management International Review, Springer, vol. 46(2), pages 235-255, March.
    7. Robert Pearce, 2001. "Multinationals and Industrialisation: The Bases of 'Inward Investment' Policy," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(1), pages 51-73.
    8. Urmas Varblane & Katrin Männik & Helena Hannula, 2005. "Autonomy And Performance Of Foreign Subsidiaries In Transition Countries," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 38, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    9. Kappen, Philip, 2011. "Competence-creating overlaps and subsidiary technological evolution in the multinational corporation," Research Policy, Elsevier, vol. 40(5), pages 673-686, June.
    10. Campa, Jose M. & Chang, P. H. Kevin & Refalo, James F., 2002. "An options-based analysis of emerging market exchange rate expectations: Brazil's Real Plan, 1994-1999," Journal of Development Economics, Elsevier, vol. 69(1), pages 227-253, October.
    11. Michael J. Enright & Venkat Subramanian, 2007. "An organizing framework for MNC subsidiary typologies," Management International Review, Springer, vol. 47(6), pages 895-924, December.
    12. Urmas Varblane & Katrin M??nnik & Helena Hannula, 2005. "Autonomy and Performance of Foreign Subsidiaries in five Transition Countries," William Davidson Institute Working Papers Series wp780, William Davidson Institute at the University of Michigan.
    13. Dörrenbächer, Christoph & Gammelgaard, Jens, 2006. "Subsidiary role development: The effect of micro-political headquarters-subsidiary negotiations on the product, market and value-added scope of foreign-owned subsidiaries," Journal of International Management, Elsevier, vol. 12(3), pages 266-283, September.
    14. Pisoni, Alessia & Fratocchi, Luciano & Onetti, Alberto, 2013. "Subsidiary autonomy in transition economies: Italian SMEs in Central and Eastern European countries," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 18(3), pages 336-370.
    15. Marina Papanastassiou & Robert Pearce & Antonello Zanfei, 2020. "Changing perspectives on the internationalization of R&D and innovation by multinational enterprises: A review of the literature," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(4), pages 623-664, June.
    16. Katrin Männik & Helena Hannula & Urmas Varblane, 2004. "Country, Industry And Firm Size Effects On Foreign Subsidiary Strategy.An Example Of Five Cee Countries," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 27, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    17. Robert Pearce, 2009. "Multinationals’ Strategies and the Economic Development of Small Economies: A Tale of Two Transitions," Management International Review, Springer, vol. 49(1), pages 81-94, February.
    18. Löffler, Clemens & Pfeiffer, Thomas, 2013. "Centralized versus Decentralized External Financing, Winner Picking and Corporate Socialism," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79902, Verein für Socialpolitik / German Economic Association.
    19. Cerrato, Daniele, 2006. "The multinational enterprise as an internal market system," International Business Review, Elsevier, vol. 15(3), pages 253-277, June.
    20. Isabel Álvarez & John Cantwell, 2011. "International Integration and Mandates of Innovative Subsidiaries in Spain," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 3(3), pages 415-444, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:8:y:1999:i:2:p:197-211. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.