The moderating effect of bilateral investment treaty stringency on the relationship between political instability and subsidiary ownership choice

Christopher Williams, Tatiana Lukoianova Vashchilko, Candace A. Martinez

Research output: Contribution to journalArticle

Abstract

We investigate whether the degree to which a bilateral investment treaty (BIT) protects against expropriation (i.e., its “stringency”) influences the international strategy of multinational enterprises (MNEs) as they invest in countries with varying levels of political instability. We draw on institutional logic and insights from political economics to hypothesize that BIT stringency will moderate the established positive relationship between host country political instability and minority ownership. Analysis of a sample of 289 foreign investments made by AEX-listed Dutch MNEs in 34 countries between 2004 and 2013 provides support: a more stringent BIT will encourage the MNE to choose a majority stake as political instability rises. Robustness tests provide further support for our argument. The results have both managerial and policy implications relating to the role that BIT stringency plays in determining MNE strategy.

Original languageEnglish (US)
Pages (from-to)1-11
Number of pages11
JournalInternational Business Review
Volume26
Issue number1
DOIs
StatePublished - Feb 1 2017

Keywords

  • Bilateral investment treaties (BITs)
  • Political instability
  • Subsidiary ownership choice

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Marketing

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