Determinants of Foreign Ownership in Turkish Manufacturing

Abstract

This study provides a comprehensive account of foreign investors' ownership strategies in the manufacturing sector in Turkey, drawing broadly on the framework of Dunning's eclectic theory and the transaction cost model of ownership. Unlike most of the prior research on equity ownership, which has been confined to a single source country, this study examines the ownership determinants of firms from numerous countries investing in a single host country. The study is based on a sample of 659 foreign affiliates of multinational enterprises with varying levels of foreign ownership. The study first examines the choice between a wholly owned subsidiary (WOS) and a joint venture (JV). The results show that cultural distance between the home country and the host country, the concentration ratio of the industry, diversification of parent-affiliate, capital size of affiliate, location of the affiliate, and, to some extent, the age of affiliate have the expected impact, supporting the study's hypotheses. However, the results concerning the impact of natural resource intensity of the target industry are contrary to expectations and contradict the findings of previous research. Next, the choice of equity level if the ownership structure is a JV is examined. The variables of cultural distance, diversification of parent-affiliate, and concentration ratio of Turkish industry entered prove relatively strong determinants of foreign ownership level. Little or no support is found for the impact of the age of the JV, the capital size of the JV, and the location of the JV on the foreign equity ownership level.

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