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This paper aims to understand real earnings management behavior in the context of a parent–subsidiary relationship. It explores the differences between business groups and firms that do not have controlled subsidiaries and provides potential explanations for any measured difference.

The study uses the random-effects generalized least squares (GLS) estimation to find the difference between the real earnings management behavior of business groups, represented by the ultimate parent firms and the nonparent firms from 73 countries.

The results show that ultimate parent firms have lower abnormal production costs and abnormal discretionary expenses than nonparent firms. In contrast, parent firms have higher abnormal cash flow from operations (CFO) than nonparent firms. The results are unexpected because abnormal production costs usually have a dominant direct relationship with abnormal CFO. The results indicate that business groups use a route different from manipulating production costs and discretionary expenses.

The results reveal that parent firms use a route different from manipulating production costs and discretionary expenses. The results can be used to extend the discussion to specific business group cases, such as tracing the route or allocation of real earnings management (REM) pressure from a parent firm to its listed and private subsidiaries, and if the consolidation of minority voting rights and the transitivity of control affect the behavior in its subsidiaries.

Instead of the degree of diversification or affiliation, this paper investigates REM behavior based on the parent firm's control of its subsidiaries. With this approach, the study argues that business groups prefer a route other than manipulating production costs and discretionary expenses. The results may redirect the attention of regulators to the activities of parent firms that need more policing.

The relationship between parent firms and their subsidiaries is a crucial aspect of corporate governance, and is increasingly complex in the global environment. We analyze an organizational arrangement quite common in Japan, the corporate spinoff, focusing on the relationship between parent firms in the Japanese service sector and their spinoff subsidiaries. The level of parental ownership is negatively related to the parent firm's net income and number of subsidiaries, but positively related to its advertising expenditures. In addition, parent firms tend to have lower ownership of more profitable subsidiaries. The ownership arrangement between the parent and the subsidiary appears to be based on issues broader than direct profit maximization.

Small and medium enterprises (SMEs) commonly struggle to acquire needed financial, human, and technological resources. The above being stated, recent scholarly research argues that SMEs that are able to successfully navigate the legitimacy threshold are better able to gather the resources they need to survive and grow. This article provides an empirical test of that claim by examining whether the presence of a corporate parent positively influences SME resource acquisition. Results of the study show that SMEs with corporate parents, when compared to like-sized independent SMEs, have higher credit scores, have more complete management teams, use more computers, and are more likely to be on the Internet. These differences are most pronounced for very small firms and diminish in significance as firm size increases. Study implications include the notion that presence of a corporate parent likely represents a successful navigation of the legitimacy threshold, positively increasing SME resource acquisition.

The purpose of this paper is to investigate the determinants of financing the outward foreign direct investment (OFDI) by building a three-level framework residing on host country market imperfections, ownership advantages of parent firm investing abroad and the industry to which it belongs.

The paper used random effects probit model.

Parent debt financing of OFDI by Indian parent firms is driven by the credit market development of the host country, the uniqueness of the industry to which parent firm belongs and systematic risk. Debt-oriented firms are found to invest more via parent debt.

The limitations of this study are as follows: –first, time period before 2008 could not be considered due to unavailability of data in the public domain. Second, the characteristics of foreign affiliates that spread across diverse host countries have not been factored in. Third, in the case of parent’s industry-level determinants, financial sector has not been included because the financing and risk-taking strategy of this sector are quite different from other sectors. Finally, the present study assumes financing decision to be centralized in the multinational system at the parent firm.

The practical implications of this study are as follows: first, industry innovativeness must be taken as a guide by the Indian MNEs to finance their OFDI and they must provide equity. Second, the study suggests that Indian MNEs rely on their existing capital structure while financing their OFDI. Third, parent firms are found to follow the industry norms. Fourth, parent firms must finance their OFDI by considering the development of credit market in the host country. Fifth, host government must focus on improving the credit market development of their economy and not just reducing tax rates to attract FDI into their economy.

Empirically examining internal flows in a multinational system has limited the research in the area of financing the OFDI. The paper is one of the first attempts to formally develop a model of factors that shape financing of OFDI in case of one such emerging market – India.

This article develops a new conceptual model of knowledge flows within international service firms. Our model takes explicit account of the critical role of relationships and the individual as being central to the process of knowledge transfer for service firms. The model is then validated with data collected from five international service firms using critical event analysis techniques. The findings reinforce our contention that the individual plays a critical role in the process of knowledge transfer and that relationships form an integral part of this process. The implications of this finding are also discussed.

The gap between management theory and practice has been much criticized. To help bridge the divide, a synthesis of empirical, theoretical and practice literature is offered, along with an application of the widely used VRIO framework, to contend that developing a focused corporate parenting approach as a core competence serves as a source of competitive advantage for diversified companies.

A synthesis of empirical, theoretical and practice literature is presented, beginning with a discussion of why and how firms diversify; the relative performance of firms that pursue related and unrelated diversification; an application of the resource-based view, core competencies and the VRIO framework; a description of focused corporate parenting as a core competency; a prescription for how diversified firms can implement a focused corporate parenting approach; and implications for research.

Developing a focused corporate parenting approach as a core competence serves as a source of competitive advantage for diversified companies.

The synthesis of empirical, theoretical and practice literature presented provides a foundation for future research into the impact of focused corporate parenting on diversified firm performance.

The paper includes a prescription for how diversified firms can implement a focused corporate parenting approach.

The application of the resource-based view and core competency theories to corporate parenting provides managers with the rationale for and methodology to focus their corporate parenting activities.

We build on the resource-based view and extend entry mode research by focusing on firms’ intention to transfer different resources from the parent firm to its overseas subsidiary. In line with our hypotheses, we find that parent firms that plan to transfer high levels of intangible resources to their foreign subsidiaries tend to choose wholly owned subsidiaries, while firms that intend to transfer high levels of tangible resources tend to choose international joint ventures. Moreover, we find that these relationships are moderated by institutional distance. We test our hypotheses using unique primary data from a sample of 128 foreign subsidiaries in the People’s Republic of China. Our results have important theoretical implications for international business strategy research as they develop further existing entry-mode theories.

This paper explores the potential competitive advantages from the development of an internal network of subsidiaries and external network of alliances. Given the broad scope and lack of systematic investigation in prior research, clinical field research was conducted in eleven Japanese subsidiaries in China. Our in‐depth interviews revealed that there are benefits and costs associated with the development of both subsidiary networks and alliance networks. While there are exploitation and exploration benefits from subsidiary network development, internationalizing firms (especially smaller firms) are subject to the liability of foreignness. Alliance network development is an effective way to mitigate this liability if internationalizing firms choose the right alliance strategy.

We examine the use of relative performance evaluation (RPE), asymmetry in pay for skill/luck, and compensation benchmarking for a sample of firms involved in a spinoff. The spinoff affects firm characteristics that influence the use of the identified compensation practices. We test for differences in the compensation practices for the pre- and post-spinoff firms. We find that RPE is used for post-spinoff CEOs, but not pre-spinoff CEOs. Post-spinoff CEOs are also paid asymmetrically for luck where they are rewarded for good luck but not punished for bad luck. Both pre- and post-spinoff CEOs receive similar levels of compensation benchmarking. The study provides additional evidence on factors that influence compensation practices. Our spinoff sample allows us to examine how compensation practices are affected by changes in firm characteristics while keeping other determinants of compensation constant (i.e., the board and, in many cases, the CEO). Our findings contribute to the understanding of how the identified compensation practices are used.

The springboard theory for multinational enterprises and the upward spiral model address the expansion of emerging countries’ multinational enterprises (MNEs) abroad as a set of resource-building stages. This paper aims to analyze this model by qualifying knowledge flows in three domains: learning effects, transfer flows and global connections.

The authors use 2018 data from the ORBIS database to identify evidence concerning the springboard MNE (SMNE) phenomenon. The authors select MNE firms from 93 emerging economies with presence in 71 developed and 93 developing countries. In addition, the authors differentiate between the levels of technological intensity of emerging market MNEs’ sectors.

The results highlight the existence of learning processes taking place in subsidiaries and feeding back into parent firms, as well as the existence of capability transfer from home to host units.

The main contribution is the addition of empirical evidence on the SMNE and specifically the upward spiral model, considering the micro-level and the productivity differences between parent firm and subsidiaries.