International Journal of Business and Economics

International Journal of Business and Economics
Volume 21, No. 3

December, 2022
Access to Bank Financing, Organizational Factors, and Productivity in Foreign Direct Investment: Evidence from Taiwanese MNC Subsidiaries in China
Chun-Sheng Joseph Li
Department of International Business, National Taichung University of Education
This is the first study to address the effects of political connections in terms of having access to bank loans on the economic outcomes of multinational corporation (MNC) subsidiaries in China. Operating in an emerging economy (such as China) with underdeveloped legal and business environments is a challenge for the business strategy of MNCs familiar with more advanced institutional systems. Because China has long implemented strict controls on foreign capital, foreign subsidiaries in China generally encounter tremendous difficulties in moving funds into and, especially, out of the country. Obtaining a high amount of financing from Chinese banks (CBF) enables MNC subsidiaries to avoid risk and increase their securities and elasticity in financial planning, which largely benefits the overall development of enterprises. We believe that given China’s unique government-controlled banking system, the ability to obtain loans from Chinese banks is a good indicator to measure the strength of ties MNC subsidiaries have with government officials. In this study, we focused on Taiwanese MNC subsidiaries in China as the empirical context. It shows that, for a Taiwanese subsidiary, CBF is positively related to subsidiary productivity in China. Additionally, our results suggest that headquarter size positively moderates the association between CBF and subsidiary productivity. However, none of the subsidiary-level organizational factors we studied, including subsidiary size, subsidiary age, or subsidiary technological capabilities, exerts a substantial moderating effect on the CBF--subsidiary productivity link.
Keywords:Bank Financing, China, Foreign Direct Investment, Firm Performance, MNC Subsidiaries, Organizational Factors.
JEL Classifications:M16.