Dear friends and colleagues,
We are delighted to share the second issue of Global Strategy Journal for 2024. It is available at
onlinelibrary.wiley.com/toc/20425805/2024/14/2. This issue contains papers accepted through the regular process and grouped around the topic of Political, Cultural and Regulatory factors and Cross-Border Investments.
Mauricio Jara, Aldo Musacchio and Rodrigo Wagner examine the debt advantages of wholly owned state-owned enterprises due to implicit sovereign insurance against default. Rodrigo B. DeMello, Marina Gama, Olivier Bertrand and Marie-Ann Betschinger study how political elections in emerging countries affect the internationalization of multinationals. Mark Casson and Nigel Wadeson cross-investment in a duopoly with differentiated products and place them in the wider context of cross-sourcing, including cross-trading and asymmetric sourcing. Meitong Dong, Pengcheng Ma and Lin Cui study spillover effects of FDI into emerging markets in terms of nonmarket strategies. Soni Jha and Snehal Awate investigate the effect of MNE dispersion in tax havens on home and host country productivity. John F. Zhang looks at the effect of the cultural dispersion of a multinational firm on its stock trading in the market.
The papers are open-access, and you can get them by clicking on their titles.
If you are interested in reading forthcoming papers accepted but not yet published in an issue, you can find them at onlinelibrary.wiley.com/toc/20425805/0/0.
We look forward to receiving your best work for consideration for publication.
Best wishes,
Gabriel R. G. Benito, Stewart Miller and Grazia Santangelo
Co-editors of Global Strategy Journal
The effect of political elections at home on the internationalization of state-owned multinationals from emerging countries
Rodrigo B. DeMello, Marina Gama, Olivier Bertrand, Marie-Ann Betschinger
The literature on the internationalization of state-owned enterprises in emerging countries usually implicitly assumes continuity in the provision of key resources by home country governments. This assumption, however, does not necessarily hold in the presence of political elections in democratic emerging countries. Drawing from the resource dependence theory and the literatures on election-induced uncertainty and investment irreversibility, we study how political elections in emerging countries affect the internationalization of multinationals with state indirect ownership. Using a sample of 89 Brazilian multinationals from 2000 to 2012, we find that these state-owned multinationals are less likely to internationalize during elections than multinationals with fully private ownership. When they internationalize, they choose investments that provide them with more flexibility than those chosen by their private counterparts.
Leviathan as a financial godfather: Debt advantages of wholly state-owned enterprises
Mauricio Jara, Aldo Musacchio, Rodrigo Wagner
We examine the debt advantages of wholly owned state-owned enterprises (WSOEs), due to an implicit sovereign insurance against default. Our model explains conditions that increase those advantages in bond yields. In our global sample of bonds, we find that bond issues of WSOEs, have a 57 bps discount in their yield to maturity vis-à-vis comparable corporations. The effect is even larger when we benchmark against partial state-owned firms-an effect large enough to overcome the liability of foreignness. This cheaper debt finance is stronger during crises yet disappears for sovereigns with low creditworthiness. This lower cost of debt "inflates" the profits of the median WSOE by 13%.
Cross-investments by multinationals: A new perspective
Mark Casson, Nigel Wadeson
Cross-flows of foreign direct investment (FDI) occur when firms invest in each other's home countries, affecting the terms of competition in each market. They are explained by internalization theory but have never been comprehensively investigated. This article models cross-investment in a duopoly with differentiated products. The firms decide whether to enter each market and whether to serve it through trade or local production. The model combines firm-, country-, and industry-level factors. It places cross-investment in the wider context of cross-sourcing, including cross-trading and asymmetric sourcing. It reveals different forms of cross-investment rather than being limited to cross-multidomestic. Overall, cross-investment is favored by highly differentiated products, low comparative advantage, large markets, high trade costs, and low costs of FDI.
Inward FDI and local firms' political connections in emerging markets: Evidence from China
Meitong Dong, Pengcheng Ma, Lin Cui
Research on the spillover effects of foreign direct investment (FDI) into emerging markets has primarily focused on local firms' productivity or innovation outcomes while overlooking their nonmarket strategies. Based on the resource dependence theory, we propose that inward FDI has a U-shaped impact on local firms' political connections. This is because when FDI is at a low to medium level, its spillover benefits substitute for local firms' dependence on government resources. As FDI further increases, its competitive threats outweigh spillover benefits, driving local firms to a greater dependence on the government to neutralize the threats. This relationship is contingent on external and internal factors altering resource similarity between FDI and local government. Our analyses of Chinese listed firms support our predictions.
Offshore FDI, tax havens, and productivity: A network analysis
Soni Jha, Snehal Awate
Multinational enterprises (MNEs) use tax havens to benefit from international tax arbitrage and increase their capital efficiency. These activities are purported to distort global financial markets, erode national corporate tax bases, and are singularly targeted in the media. Despite this, MNEs continue to increase the dispersion of their tax haven activities by investing in multiple tax havens. We study how this dispersion affects home and host country productivity. We model the inward and outward offshore foreign direct investment (FDI) networks using longitudinal data on 212 countries. We find that increasing dispersion leads to productivity losses at home but productivity gains in the host country. Further, increasing the prominence of home and host countries in the offshore network, by connecting with central, well-developed tax havens, improves their productivity.
Cultural dispersion and stock liquidity
John F. Zhang
This paper examines whether cultural dispersion of a multinational firm affects its stock trading in the market. The result shows that the stock liquidity negatively relates to the degree of cultural dispersion, suggesting it is costlier to trade stocks of culturally diverse firms. Among five measures of stock liquidity, Chae's (2005) turnover measure demonstrates the most consistent effect after addressing potential omitted variables and selection biases. A robustness test that extends our sample to include purely domestic firms confirms the main result of the negative effect of cultural dispersion. Furthermore, while the relation between cultural dispersion and stock liquidity may not be exactly linear, such a negative association overall holds. In addition, the influence of cultural dispersion on stock trading takes effects mainly through the agency and external information environment channels and is more pronounced for lower risk-taking multinationals.
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Grazia Santangelo
Professor
Copenhagen Business School
Copenhagen
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