Firm's choice of ownership structure: An empirical test with Korean multinationals

This paper examines the choices of ownership structure of multinational firms (MNFs) based in a newly developed country (South Korea) for their foreign affiliates. A transaction cost economics perspective is employed, taking advantage of a distinct and comprehensive firm-level data set. This is investigated as a whole-set sample of all overseas affiliates and as a sample of only partially owned affiliates using a number of analytical techniques. The paper shows that the choice of equity ownership structure is affected by the characteristics of various host countries. We find that the MNF prefers sharing control rights with a local partner when its affiliate is in a resources-based sector, when it enters a country with a large black market, or when there is large socio-cultural difference between the home and the host country.