Determinants of Equity entry Mode Choices in India

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This paper offers the large sample empirical study of the factors which impact the selection of multinational enterprises between full or partial ownership of their India subsidiaries. In this study, I tackle the following research question: what factors affect multinational enterprises’ decision to enter via wholly owned subsidiary as opposed to joint venture in the context of India. The sample consists of 769 transactions in India undertaken by multinational enterprises from 45 different countries during the period 1997 - 2015. The binary logistic regression estimation is used to test the hypothesis. As a result, I found that the geographic distance and the governance distance between MNE’s home countries and India increase the likelihood of wholly owned subsidiary while the economic distance, cultural distance, firm’s size and host country experience decrease it. It is also found that determinants of equity entry mode choices in services industry and manufacturing industry are different. Additionally, not all dimensions of governance distance have effect on entry mode selection, and government effectiveness has the strongest effect among six dimensions. The interesting point is that in the context of India, geographic distance and governance distance witnessed the opposite trend with the literature, and the underlying explanations for them are what I am trying to figure out in this study.
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