Cultural Distance, Firm Boundaries, and Global Sourcing

Arbeitspapier

Casual observation suggests that cultural differences play an important role in business transactions, yet systematic evidence on this relationship is scarce. This paper provides a novel investigation of the effect of cultural distance on multinational firms' decisions to integrate their cooperation partners into firm boundaries, rather than transact with independent companies at arm's-length. To guide our empirical analysis, we develop a simple theoretical model which suggests that (i) cultural distance between contracting parties decreases the relative attractiveness of integration, and (ii) this effect is mitigated in more productive firms. We test these predictions using extensive product-, industry-, and firm-level data. We find a robust negative relationship between cultural distance and the relative attractiveness of integration. In line with our theoretical predictions, we also find that the effect of cultural distance on firm boundaries is less pronounced the higher firm's productivity.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 10560

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Empirical Studies of Trade ; Multinational Firms; International Business ; Transactional Relationships; Contracts and Reputation; Networks ; Organization of Production
• Thema: cultural distance ; firm boundaries ; international make-or-buy decision ; firm productivity

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Gorodnichenko, Yuriy ; Kukharskyy, Bohdan ; Roland, Gerard
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2023

Weitere Informationen

• Handle: http://hdl.handle.net/10419/279310
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ