Government Effectiveness, the Global Financial Crisis, and Multinational Enterprise Internationalization

This study examines the influence of national institutions on multinational enterprise entry mode behavior during economic downturns. Drawing on institutional and transaction cost theories, the authors propose (1) alternative hypotheses for the effect of host-country government effectiveness (a spatial institution) and (2) hypotheses for a direct and an indirect effect of a global financial crisis (a temporal event affecting all countries) on firms' internationalization strategy. With a sample comprising 624 foreign expansion investments conducted by Dutch multinational enterprises between 2004 and 2009 into 66 countries, this investigation confirms that majority control more likely occurs when host-country government effectiveness is high or when the investment is made during a global financial crisis. The authors also find support for a hypothesized moderating effect of a global financial crisis. Concluding remarks discuss the implications of these findings for scholars and practitioners.