Three essays on determinants of FDI, MNCs' innovation, and ownership performance : evidence from a panel study of EU firms' investment in China

Cai, Huifen

Business
2012

Thesis or dissertation


Rights
© 2012 Huifen Cai. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright holder.
Abstract

This thesis consists of three empirical studies. The aim of the thesis is to examine the determinants of European Union (EU) foreign direct investment (FDI), EU subsidiaries‘ innovation performance and EU subsidiaries‘ ownership performance in China. As two of the largest, mutually complementary markets in the world, EU and the People‘s Republic of China (China or PRC), which represents the largest FDI recipient and a region with a substantial share of foreign ownership, have been largely overlooked in terms of a comprehensive economic analysis on determinants and performance of FDI inflows into China at firm level. This gap in extant literature drives this research. The research contains a number of important and original aspects that potentially contribute to the literature on several grounds.

The first study investigates the determinants of EU FDI in the Chinese market using a unique dataset comprising 680 EU firms for the period of 1998-2007 from the State Statistical Bureau of China. The theoretical framework of the study builds on Dunning's ownership–location–internalization ( OLI ) paradigm, incorporating host country institutional factors to test international production by EU firms in an emerging market. It finds that FDI is positively related to policy liberalisation. However, some other factors such as firm technology, personal share, profitability, wages and rule of law reveal unexpected results. In addition, the results imply that the association of FDI with firm size and research and development intensity is non-linear. The findings have important implications for practitioners and policymaking.

The second study explores the spatial determinants of 680 EU MNC subsidiaries‘ innovation in China, over the period of 1998-2007, using unbalanced panel data analysis. It bridges three theoretical approaches and streams of research: the Resource Based View (RBV), the Transaction Cost Theory (TCT) and Institutional Based Theory and applies econometric analysis techniques to investigate innovation performance and to test the presence of agglomeration effect of past innovation activities. The results show MNC subsidiaries‘ innovation is positively related to firm size and export intensity. However, some other factors such as labour training and collective share reveal unexpected results. This study contributes to the literature on the evolution of multinational enterprises by exploring determinants of developed foreign subsidiaries‘ innovation activities in emerging markets.

The third study adopts a multi-theoretic approach to investigate a phenomenon previously unexplored in extant literature, namely, the differential impact of foreign resource, ownership type and institutions on EU subsidiary performance in China, using newly available official data on 329 wholly owned subsidiary (WOS) and 351 joint venture (JV) EU manufacturing subsidiaries drawn from the State Statistical Bureau of China over a 10-year period (1998-2007). The study seeks to increase knowledge of foreign ownership performance by focusing on the relationship between subsidiary specific resources, equity share, and host institutional environment. The conceptual framework integrates the tenets of the Resource Based View, Agency theory ( AT), and Institutional Based View, reflecting EU firm FDI strategic ownership choices between JV and WOS) and host country institutional environment. This study offers an analysis of the relationship between ownership structure and FDI performance of market - seeking FDI EU firms in Chinese transitional economies. The results show significant differences in performance and ownership structure among China‘s state-owned enterprises (SOEs), collectives, corporate, private enterprises, Hong Kong, Macau and Taiwan-funded (HKMT) firms, and wholly EU invested firms. Additionally, asset turnover, asset tangibility, and Chinese economic and social institutions factors have significant negative relationships with subsidiary performance. These result point to important complementarities, but also potential conflicts between policy reforms and the interest/ benefit of multinational subsidiaries.

Publisher
Business School, The University of Hull
Supervisor
Guney, Yilmaz; Ozkan, Aydin (Professor of finance)
Qualification level
Doctoral
Qualification name
PhD
Language
English
Extent
2 MB
Identifier
hull:16086
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