The impact of family ownership on establishment and ownership modes in foreign direct investment: The moderating role of corruption in host countries

• Author: Shigeru Asaba,Junichi Yamanoi
• Published date: 01 February 2018
• DOI: http://doi.org/10.1002/gsj.1198
• Date: 01 February 2018

SPECIAL ISSUE ARTICLE

The impact of family ownership on establishment

and ownership modes in foreign direct investment:

The moderating role of corruption in host countries

Junichi Yamanoi | Shigeru Asaba

Faculty of Commerce, Waseda University, Tokyo,

Japan

Correspondence

Junichi Yamanoi, Faculty of Commerce, Waseda

University, Building 11-1209, 1-6-1 Nishiwaseda,

Shinjuku-ku, Tokyo 169-8050, Japan.

Email: yamanoi@waseda.jp

Funding information

JSPS, Grant/Award number: JP16H05953

Research Summary: In this study, we adopt a socioemo-

tional wealth perspective to examine the influence of

family ownership on foreign direct investment. When

establishing foreign subsidiaries, firms with greater

degrees of family ownership are more likely to engage in

greenfield investment and full equity ownership in order

to maintain family owners’socioemotional wealth.

Additionally, these relationships are more pronounced in

countries with higher levels of corruption. In corrupt

countries, greater control over foreign subsidiaries is nec-

essary to restrict their corrupt behaviors, which can seri-

ously damage the firm’s socioemotional wealth and

destroy the reputation of the family owners. By using a

dataset of foreign market entries by Japanese listed firms

in the electronic machinery industry, we find general sup-

port for our hypotheses.

Managerial Summary: We find evidence that Japanese

listed electronic machinery manufacturers with larger

family ownership are more likely to choose greenfield

investment and full ownership when entering foreign

countries. This result suggests that family owners prefer

to maintain strong control on local subsidiaries, possibly

for preserving their socioemotional wealth. Additionally,

this tendency of family firms’regarding the choice of

greenfield investment is stronger when they enter coun-

tries with higher levels of corruption. Managers and

investors of family firms might need to pay attention to

family owners’entry mode choices, which could be

incentivized excessively for the preservation of socioemo-

tional wealth, possibly at the expense of economic

wealth.

Received: 28 December 2015 Revised: 28 April 2017 Accepted: 8 May 2017

DOI: 10.1002/gsj.1198

Copyright © 2017 Strategic Management Society

106 wileyonlinelibrary.com/journal/gsj Global Strategy Journal. 2018;8:106–135.

KEYWORDS

corruption, entry mode, family business, family

ownership, foreign direct investment

1|INTRODUCTION

In founding a subsidiary in a foreign country, a parent firm needs to determine its establishment and

ownership modes. Two options for establishment include the creation of a new local subsidiary

(i.e., greenfield investment) or the acquisition of an existing local company (Anand & Delios, 2002;

Barkema & Vermeulen, 1998). Options related to ownership are based on the proportion of a local

subsidiary’s shares that a parent firm owns (Brouthers & Hennart, 2007). Much of the existing

research on this subject has examined these issues from diverse perspectives, such as transaction

cost theory (Zhao, Luo, & Suh, 2004), institutional theory (Meyer, Estrin, Bhaumik, & Peng, 2009),

and evolutionary processes through organizational learning (Chang & Rosenzweig, 2001). These

studies have shown that a multinational enterprise’s (MNE’s) choices related to establishment and

ownership are driven by the pursuit of economic wealth. Stated differently, MNEs are more likely

to choose establishment and ownership modes that are expected to yield “the highest risk-adjusted

return on investment”(Zhao et al., 2004, p. 525). Despite these findings, the results of recent meta-

analyses have demonstrated that economic motives only partially account for an MNE’s choices

related to entry mode, implying the presence of other predictors that remain untested (e.g., Tihanyi,

Griffith, & Russell, 2005; Zhao et al., 2004).

The limited investigation of the differences between family and nonfamily firms may explain

why past research on foreign direct investment (FDI) has failed to effectively identify predictors of

establishment and ownership modes. Family firms are defined as those “in which multiple members

of the same family are involved as major owners or managers, either contemporaneously or over

time”(Miller, Le Breton-Miller, Lester, & Cannella, 2007, p. 836). Although a few attempts

(Boellis, Mariotti, Minichilli, & Piscitello, 2016; Filatotchev, Strange, Piesse, & Lien, 2007; Pinho,

2007; Pukall & Calabrò, 2014) have been made to examine family firms’entry mode choices, their

empirical findings are mixed: they showed that family firms tend to prefer more commitment to

local subsidiaries in market entries (Boellis et al., 2016) or less commitment (Filatotchev et al.,

2007), or they reported no findings (Pinho, 2007). These inconclusive results suggest that a relation-

ship between family ownership and entry mode choices exists in the presence of boundary condi-

tions. In particular, these studies have conducted a limited investigation on how family firms’entry

mode choices vary across the institutional environments of host countries, which could serve as a

boundary condition. Exploring the impact of family and nonfamily firms’differences in FDI might,

thus, allow us to find some novel determinants of entry modes that are not prevalent among the sam-

ples of nonfamily firms used in prior FDI studies. Accordingly, we can then draw a more complete

picture of FDI.

In family firms, founding families exert substantial influence on firms’affairs through their

involvement in ownership and/or management activities (Gómez-Mejía, Cruz, Berrone, & De Cas-

tro, 2011; Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007). According

to Gómez-Mejía et al. (2007), when making managerial decisions, family owners tend to use

YAMANOI AND ASABA 107