Context and reinvestment decisions : why the transitional periphery differs from other post-state socialist economies

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Demirbag, Mehmet and McGuinness, Martina and Wood, Geoffrey (2014) Context and reinvestment decisions : why the transitional periphery differs from other post-state socialist economies. In: Academy of International Business Annual Meeting 2014, 2014-06-23 - 2014-06-26, Canada.

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Abstract

A range of studies have found that corruption has a significant impact upon FDI decisions, however to date there has been little investigation into longer term investments made by firms. Again, there is little work on reinvestment choices on the transitional periphery and how this might differ from the more stable transitional economies of central and Eastern Europe. Utilising 2005 World Bank Enterprise Survey data, this study explores the relationship between corruption and MNEs’ strategic decision to reinvest profits. From an institutionalist starting point, we find variation in the different dimensions of corruption and their impact upon relationship between corruption and reinvestment. We find that pervasive corruption impacts negatively upon reinvestment, but that its effects are more pronounced in the transition al periphery. Perceived robust legal institutions have a positive correlation with reinvestment, but again, the negative effects are most pronounced on the transitional periphery. We ascribe this disparity to greater institutional fluidity, and explore why the latter has particularly adverse effects. Finally we find that firm level attributes of increased size and age are important factors in positive reinvestment decisions, and appear to be able to mitigate the worst consequences of this fluidity.

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