Contracting institutions and firm integration around the world

Peter Eppinger and Bohdan Kukharskyy

No 148, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: Firm integration is fundamentally shaped by contractual frictions. But do better contracting institutions, reducing these frictions, induce firms to be more or less deeply integrated? To address this question, this paper exploits unique micro data on ownership shares across more than 200,000 firm pairs worldwide, including domestic and cross-border ownership links. We uncover a new stylized fact: Firms choose higher ownership shares in subsidiaries located in countries with better contracting institutions. We develop a Property-Rights Theory of the multinational firm featuring partial ownership that rationalizes this pattern and guides our econometric analysis. The estimations demonstrate that better contracting institutions favor deeper integration, in particular in relationship-specific industries.

Keywords: firm integration; contracting institutions; multinational firms; Property-Rights Theory; ownership shares (search for similar items in EconPapers)
JEL-codes: D02 D23 F21 F23 L14 L23 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-bec, nep-cta and nep-int
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Citations: View citations in EconPapers (4)

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Journal Article: Contracting institutions and firm integration around the world (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:148

DOI: 10.15496/publikation-57694

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