Can Parents Be Attributed to Their Subsidiary Performance? A Multi-Level Analysis for Performance Determinants of Multinational Enterprises in Pakistan

Abstract

International firms are highly sensitive to the performance of their subsidiaries and want to understand the factors behind their monetary success. Thus, numerous strategies are employed by these International firms to explore subsidiaries’ performance determinants; usually, these include subsidiary level attributes, ignoring the parent’s impact along with its country. To address this gap we construct a multi-level research that focuses the subsidiary, parent attributes along with countries’ Governance Indicators while predicting the determinants of subsidiary performance in Pakistan.

We use two different levels i.e. parent & subsidiary level; multi-level analysis approach with HLM (Hierarchical Linear Model) in this research paper. Governance indicators of both parents and subsidiaries were taken explanatory factors along with Market growth, size, Performance, R & D, capital structure as well as asset management policies of parent. Subsidiary level factors included parents’ ownership, size, equity, and capital investment. 26 multinational companies listed on Pakistan Stock Exchange were included. Data was taken from the year 2012 to 2018. Selected companies cover around ten sectors of Pakistan Stock Exchange.

The study revealed that on both levels; parents and subsidiaries, Governance institutions are more influencing factors rather than companies’ own attributes. We recommend that before investing in a country, international businesses should take into account Governance institutions (by World Bank); more than their own attributes.

Originality/value - This study contributes to the existing approaches to determining subsidiary performance through adding Governance institutions and parent level attributes. Especially it explores the determinants of subsidiary performance in a developing country; Pakistan in the Asia continent.