Internal equity financing and the performance of multinational subsidiaries in emerging economies

• Published in: Journal of international business studies Vol. 46; no. 4; pp. 468 - 490
• Main Authors: Nguyen, Quyen T K, Rugman, Alan M
• Format: Journal Article
• Language: English
• Published: London Palgrave Macmillan 01-05-2015; Palgrave Macmillan UK
• Subjects: Business and Management; Business Strategy/Leadership; Business studies; Capital markets; Consolidated financial statements; Debt financing; Decision making; Developing countries; Economic performance; Emerging markets; Equity financing; Financial management; Foreign subsidiaries; Hypotheses; International Business; International finance; LDCs; Management; Management decisions; Multinational corporations; Multinational enterprises; Organization; R&D; Research & development; Retained earnings; Securities markets; Skills; Strategic management; Studies; Subsidiary; Western Europe; United Kingdom > UK; Southeast Asia; subsidiary-level financial management decision-making; South East Asia/ASEAN; pecking order theory; internal equity financing; internalization theory; subsidiary performance
• ISSN: 0047-2506; 1478-6990
• DOI: 10.1057/jibs.2014.64

We examine the internal equity financing of the multinational subsidiary which retains and reinvests its own earnings. Internal equity financing is a type of firmspecific advantage (FSA) along with other traditional FSAs in innovation, research and development, brands and management skills. It also reflects subsidiary-level financial management decision-making. Here we test the contributions of internal equity financing and subsidiary-level financial management decision-making to subsidiary performance, using original survey data from British multinational subsidiaries in six emerging countries in the South East Asia region. Our first finding is that internal equity financing acts as an FSA to improve subsidiary performance. Our second finding is that over 90% of financing sources (including capital investment by the parent firms) in the British subsidiaries come from internal funding. Our third finding is that subsidiary-level financial management decision-making has a statistically significant positive impact on subsidiary performance. Our findings advance the theoretical, empirical and managerial analysis of subsidiary performance in emerging economies.