Decision-Making Power in Foreign Subsidiaries and its Effect on Financial Constraints: An Analysis for Selected European Transition Economies on the Basis of the IWH FDI Micro Database 2013

Felix Noth and Andrea Gauselmann

Eastern European Economics, 2016, vol. 54, issue 6, 459-472

Abstract: This article analyzes whether the distribution of decision-making power between the headquarters and foreign subsidiaries of multinational enterprises (MNEs) affects the foreign affiliates’ financial constraints. The findings show that not much decision-making power has as yet been moved from headquarters to foreign subsidiaries in European post-transition economies. The high concentration of decision-making power within the MNE’s subsidiary points toward higher financial constraints. However, a nonlinear effect is found, which suggests that financial constraints within the subsidiary only increase with more decision-making power when the power granted to the subsidiary is at a low level. For subsidiaries that already have autonomy in decision-making, granting more power in this regard has no effect on financial constraints.

Date: 2016
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DOI: 10.1080/00128775.2016.1194214

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