Institutional and transaction cost influences on partnership structure of foreign affiliates

This paper considers the determinants of foreign affiliate structure in the context of foreign equity ventures in Turkey. Institutional variables and transaction costs variables are examined as determinants of choice between wholly owned subsidiary, dyadic joint venture and multi-partner joint venture. The findings support the majority of the hypotheses. We find that research and development (R&D) intensity, cultural distance, location of affiliate, affiliate size, political risk and corruption perception distances are particularly important in determining the choice of affiliate structure. Some partial support has also been found for the impact of foreign direct investment (FDI) concentration and linguistic distance on partnership structure of foreign affiliates. No support, however, has been noted for the effect of advertising intensity of the target industry. Both transaction cost specific and institution specific variables were found to be significant in explaining affiliate formation decisions