For each article, I need 1 page single spaced summary. instructions are attached in the assignment(1).pdf and both articles are attached
Assignment Write 1 page single spaced summary for each article Both articles will be attached in the email The analyses should summarize: ● the basic research question in the article, ● the method used to answer the research question, and ● the conclusions reached by the author. The Determinants of Foreign Multinational Enterprise Firms' Board Governance in Caribbean Offshore Island Economies Journal of International Management 28 (2022) 100936 Available online 2 March 2022 1075-4253/© 2022 The Author. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). The Determinants of Foreign Multinational Enterprise Firms’ Board Governance in Caribbean Offshore Island Economies Bruce Hearn * Department of Accounting, Centre for Research in Accounting, Accountability and Governance (CRAAG), Southampton Business School, University of Southampton, Building 2, University Road, Highfield Campus, Highfield, Southampton SO17 1BJ, UK A R T I C L E I N F O Keywords: Foreign MNE networks Subsidiary governance Tax havens Institutions Caribbean A B S T R A C T Using a unique sample of 171 listed firms in the Caribbean region, this paper explores the in- fluence of post-entry ownership of foreign MNEs on the board composition of subsidiaries. Our findings reveal higher ownership is a means of enhancing the security of property rights while simultaneously creating a liability of foreignness. This causes subsidiaries to externally contract for resources, leading to the hiring of more lawyers and fewer accountants. The opposite is true for progressively lower levels of foreign MNE ownership. Firms’ adoption of shareholder rights governance amplifies these findings, while state formal institutional quality reverses them. “The Devon [England] town of Ilfracombe, with its 11,000 inhabitants, has two lawyers’ offices, an insurance company and two sets of accountants, as well as a branch of Lloyds and a Nationwide. The 11,000 Nevisians [St Kitts & Nevis offshore centre], by contrast, host six domestic banks, one international bank, 18 insurance managers, seven international insurance entities, four money service businesses and 58 registered agents, many of them law firms. Nevis may be the most over-lawyered place on earth.” (The Guardian, 2018) 1. Introduction The Caribbean region has largely been overlooked in the international business (IB) literature, despite its immediate proximity to some of the largest economies worldwide in North and Latin America, the exception being a study by Woodward and Rolfe (1993). However, during the last thirty years since that study, the region has rapidly evolved to account for the largest concentration of offshore tax centres worldwide, the latter acting as conduits for approximately 40% of all foreign direct investment (FDI) flows worldwide (Damgaard et al., 2018). While this burgeoning offshore industry has precipitated rapid development of some of the re- gion’s distinctive island economies, it has been accompanied by profound heterogeneity in the institutional frameworks. This has motivated foreign multinational enterprises (MNEs) to increasingly invest into the island economies themselves, rather than merely using them as tax-efficient investment conduits, with internationally renowned financial services brands, such as Royal Bank of Canada and Scotiabank, as well as leisure industry icons such as Four Seasons and Marriott, proliferating their regional investments. Our study focusses on the complementary roles played by foreign MNEs’ increasing direct ownership in their subsidiaries, and the proportions of commercial lawyers and professional chartered accountants serving on their boards of directors as a means of protecting against infringements of their property rights. Our theoretical approach contrasts the property rights perspective advanced by Driffield et al. (2016) with institutional theory’s * School of Management, University of Bradford, Bradford, West Yorkshire BD7 1DP, UK. E-mail address:
[email protected]. Contents lists available at ScienceDirect Journal of International Management journal homepage: www.elsevier.com/locate/intman https://doi.org/10.1016/j.intman.2022.100936 Received 11 August 2020; Received in revised form 14 February 2022; Accepted 17 February 2022 mailto:
[email protected] www.sciencedirect.com/science/journal/10754253 https://www.elsevier.com/locate/intman https://doi.org/10.1016/j.intman.2022.100936 https://doi.org/10.1016/j.intman.2022.100936 http://crossmark.crossref.org/dialog/?doi=10.1016/j.intman.2022.100936&domain=pdf https://doi.org/10.1016/j.intman.2022.100936 http://creativecommons.org/licenses/by/4.0/ Journal of International Management 28 (2022) 100936 2 legitimacy-based view (Scott, 1995), which we apply to rationalise Sewak and Sharma’s (2020) novel market-entry strategy based on federations or clusters of subsidiaries. These regional conglomerates of subsidiaries afford economies of scale in coordination costs and economies of scope through the power of the foreign MNE parent’s brand image (Sewak and Sharma, 2020). This “liability of foreignness” differentiates the subsidiary’s products and services at a local level, as exemplified by financial services, and at an in- ternational level, as with the leisure industry, which leads to competitive monopoly rents (Zaheer, 2005). While the foreign MNE’s brand is central to value creation (Zaheer, 2005), this might also be expected to lead to an elevated protection of property rights based on higher ownership and related control (Driffield et al., 2016). However, the autonomy of island political economies, alongside their considerable heterogeneity, leads to elevated risks of expropriation at a local island level. These risks can be countered by subsidiaries hiring more lawyers onto their boards of directors, whose intimate local knowledge mitigates the more dynamic vulnerabilities to local actors adept in the idiosyncrasies of the indigenous institutional framework (Pham, 2020; Liu and Sun, 2021). The above quote from The Guardian underscores the importance of lawyers within offshore jurisdictions, highlighting their proliferation in these locations. Conversely, the same risks increase the reliance on the foreign MNE’s elevated ownership and accompanying brand and reputation to reinforce its property rights and deter expropriation. This leads to a reduction in stakeholders’, other than the foreign MNE’s, participation in the control of the subsidiary, leading to less likelihood of conflict between economic actors and hence less necessity for hiring onto the board of directors accountancy experts whose attestation skills would be essential for resolving and mitigating such conflict. We explore the institutional contingencies of our main theorised association with a combination of, first, firm governance level and, then, national formal institutional quality. We argue that these institutional contingencies mirror the motivations behind the role of the subsidiary within the wider networks of foreign MNEs. The first, being the degree of adoption of shareholder rights governance, is associated with international investment norms emphasising the appropriateness of minority investor property rights and welfare protections (Bell et al., 2014). We argue that a subsidiary’s adoption of such governance reflects the foreign MNE’s motivations for increased engagement with external constituencies (Aguilera et al., 2008), both local and international. However, such increased engagement is also associated with increased tunnelling risks, as well as complexity in contracting, leading to an increased need for the subsidiary to hire lawyer-directors in order to co-opt these contingencies (Mescher, 2008). Equally, the risk from increasing engagement leads foreign MNEs to increase their ownership within the subsidiary in order to better assert their property rights, leaving even less room for local stakeholders to participate (Driffield et al., 2016). Increased dominance by the foreign MNE parent, accompanied by its leverage of an international brand and reputation, leads to a reduction in potential conflict with minority stakeholders, who lack substantive control, and therefore a reduced need for specialist accounting skills on the board (Engel, 2005; Maury, 2000). This implies a lower need for professional chartered accountants to be hired onto boards of directors. The second institutional contingency is formal institutional quality, which we use in conjunction with our singular focus on the Caribbean region, where territories are uniquely divided between high-quality offshore jurisdictions and their low-quality developing- country counterparts (Hines, 2010; Allred et al., 2017). Offshore jurisdictions are complex in being bifurcated between some of the highest-quality protections afforded for minority investor property rights in the world and, paradoxically, some of their biggest in- fringements through formally mandated opacity and enhancements of insider welfare vis-à-vis that of minorities (Hines, 2010; Allred et al., 2017). This distinction masks the presence of overwhelmingly powerful family institutions underlying the formal institutional architecture that is reflective of the islands’ colonial heritage (Fichtner, 2016). It also underscores the considerable complexity in the regulatory environment for subsidiaries, including powerful indigenisation policies designed to protect the hegemonic control of the handfuls of extended families that are dominant in offshore island economies. The former necessitates increased need for legal skills to be hired onto boards of directors to co-opt the contingencies associated with complex offshore regulation. The latter necessitates higher accounting skills, due to increased risks of conflict arising from the control of cash flows and assets, due to the powerful presence of indigenous stakeholders, who are empowered by indigenisation policies, and who participate in the subsidiaries. Finally, we make a number of methodological contributions that will assist in the future study of offshore jurisdictions. The first is in the unique, if laborious, hand collection of our dataset that is based on the collection and compilation of individual firm annual reports for a comprehensive sample of all 171 listed firms, from 2000 to 2017, across the Caribbean region. All of these firms are indigenised as primary listings and so embedded within the indigenous socio-cultural fabric. Secondly, we introduce a new firm-level shareholder rights governance adoption index, based on 31 hand-collected governance elements drawn from annual reports, based on the OECD’s (2004) Principles of Good Governance. This is tractable, replicable and appropriate for the severe data limitations prevalent in emerging economies, while we find it equally appropriate for application to a severely understudied region characterised by the world’s highest proportion of offshore centres and tax havens. Our study proceeds in the next section with an outline of the theory and related hypotheses. The section thereafter details data collection and sample construction before the following section outlines our model and defines the independent and control variables used. Thereafter follows a section in which the empirical results are discussed. The final section contains conclusions and policy recommendations. 2. Theory and hypotheses Our starting point is to draw on the model of subsidiary federations as a distinct entry-mode strategy, as cited by Sewak and Sharma (2020), which supersedes the traditional “hub and spokes” model of subsidiary networks envisaged in IB literature such as Ghoshal and Bartlett (1990). These subsidiary federations are argued to lead to competitive advantages derived from their conglomerate organ- isational form, in which a number of subsidiaries are subordinated