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MNE internal capital markets and subsidiary strategic independence

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  • 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
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