Determinants of ownership-based entry mode choice of MNEs: Evidence from Mongolia

Abstract and Key Results

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This paper provides a comprehensive analysis of foreign investors’ ownership strategies in the land-locked transition economy of Mongolia. Drawing broadly on the transaction cost theory and institutional model, a number of investing firm and host country characteristics were identified. Drawing on a sample of 1,033 affiliates of foreign investors with varying levels of foreign ownership, the paper examines the choice between a wholly owned subsidiary (WOS) and a joint venture (JV).

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Strong support has been found for the impact of nationality and normative distance on the ownership mode choice of foreign investors. The results show that the main determinants of foreign equity ownership found in previous research also influence the ownership structure offoreign affiliates in Mongolia. The extent of FDI concentration, natural resource intensity of target industry and location of the affiliate have the expected impact on the foreign investor’s choice between a JV and a WOS. However, no support has been found for the impact of capital size of affiliate on the level of equity ownership of foreign affiliates.