The influence of local institutional dynamics on foreign ownership in international joint ventures: Speed, irregularity and synchronization

This research focuses on how three dynamics of institutions--speed, irregularity and synchronization of pro-market reforms −-lead to adjustment of ownership structures in established international joint ventures (IJVs). Based on empirical research on the ownership adjustments by IJVs in 30 provinces in China, I find that MNEs tend to take higher ownership in IJVs in regions with more rapid and synchronized reforms, while they are less likely to increase ownership share in provinces with highly irregular reforms. Moreover, rapid reforms are more likely to stimulate foreign ownership in regions with initially poor institutions, while regular and synchronized reforms help to increase foreign ownership when the institutional development is relatively mature. The findings suggest that managers in multinational enterprises pay more attention to the dynamics of institutions in host markets, and host governments carry out pro-market reforms more rapidly and steadily to attract foreign investments.