MNEs’ Ownership Structure under Uncertainty: Explanations from TCE and Real Options Logic

How does an MNE choose its ownership structure when it enters into transition nations where the level of corruption is largely high? This paper examines how uncertainty stemming from corruption affects an MNE’s choice of governance forms using the data of 463 MNEs in 24 transition countries. Drawing on two theoretical perspectives such as TCE and real options logic, this study proposes two sets of competing hypotheses regarding firms’ selection of ownership structure. Results show that TCE predictions have a better explanatory power on the choice of governance forms over those of real options logic as a whole. In particular, this study finds that an MNE is more likely to adopt wholly owned subsidiaries in highly arbitrary environment of corruption whereas they intend to cope with a joint venture form of governance under highly pervasive corruption environment. Consistently, an MNE which has more familiar with corruption tends to adopt a joint venture form of governance.