| HBS Working Paper Series
Doing What the Parents Want? The Effect of the Local Information Environment on the Investment Decisions of Multinational Corporations
This paper examines how the external information environment in which foreign subsidiaries operate affects investment decisions in multinational corporations. We hypothesize and find that foreign subsidiaries in country-industries with more transparent information environments better translate the local growth opportunities into investments. This result is consistent with the information environment helping MNCs monitor the subsidiary's investment decision. Cross-sectional tests show that the effect is larger when there is greater "distance" between the parent and the subsidiary. Our results suggest that the external information environment helps mitigate agency problems that arise when firms expand their operations across borders. This paper contributes to the literature by showing that the external information environment helps MNCs mitigate information frictions within the firm.
Keywords: Business Subsidiaries;
Cross-Cultural and Cross-Border Issues;
Multinational Firms and Management;