Does Economic Governance Matter?

Does Economic Governance Matter?

Governance Institutions and Outcomes

New Directions in Modern Economics series

Edited by Mehmet Ugur and David Sunderland

This book contributes to the growing governance literature in three ways. First, it extends the analysis to new areas such as power asymmetry, regulation, transnational company strategies, and law enforcement. Secondly, it examines the role of formal institutions that shape and enforce the rules/norms codified in law; but also private-ordering institutions that function under the umbrella of the State; and private institutions (such as market rules/norms) that provide reputational and other information that foster compliance. Finally, the book extends and enriches the governance debate, addressing issues such as the determinants of institutional quality and efficiency, and the interaction between actor networks and institutional norms.

Chapter 5: Strategies of Transnational Companies in the Context of the Governance Systems of Nation-states

Grazia Ietto-Gillies

Subjects: business and management, corporate governance, economics and finance, corporate governance, institutional economics, political economy, politics and public policy, political economy


1 Grazia Ietto-Gillies INTRODUCTION The transnational or multinational companies (TNCs or MNCs) are much talked about as if they were a totally different type of institution from the normal company or firm.2 Are they? And if they are, what makes them so? The distant antecedents of the transnational company can be dated back centuries to the Medici Bank in Renaissance Florence or to the trading companies from Northern Europe in the seventeenth and nineteenth centuries. Many business historians (Cox, 1997; Jones, 2002) agree that the main factor that led to the development of the TNC was the formation of joint stock companies. Nonetheless a TNC is not just another joint stock company. What are the key elements that make a company a TNC? The defining element is operations across frontiers. But not just any type of cross-border operations. Imports and exports on their own are not operations that identify a company as a TNC. The specific characteristics that identify the TNC are: (1) ownership of assets abroad leading to (2) direct business operations; and (3) the ability to control those operations. Control has two main connotations in the context of a TNC. The first connotation is the equity stake in the foreign enterprise. What percentage of the foreign assets must be owned by the main company for the latter to have control? The International Monetary Fund (1977) guidelines set a minimum of 10 per cent. Equity control is a necessary condition but not a sufficient condition to ensure control of...

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