Principal-­‐Agent i internationalisering & udenlandsk ekspansion: Principal-­‐Agent problemer forbundet med samarbejdsarrangementer i direkte udenlandske investeringer

Jesper Johansen

Student thesis: Diploma thesis

Abstract

The purpose of this paper is to investigate the agency problems MNCs encounter, when establishing foreign direct investments through the entry modes licensing, franchise and joint ventures. By synthesizing and applying agency theory and traditional transaction cost economics and internationalization theories, the paper aims to modify or create a framework for ex ante analysis. The paper applies a multiple case study approach, where three cases have been selected to serve as the empirical data. The research design has found inspiration in a variant of process tracing known as causal inference analysis first adopted by Moravcsik (1990). By identifying causal connections between theoretical criteria and empirical observations, the dynamics between incentive structures and moral hazard can be analyzed as the probability of information asymmetry. Information asymmetry is analyzed through a framework developed by synthesizing and applying transaction cost theory and combining agency theory in a unified framework for ex ante and ex post analysis. The key findings are information asymmetry and principal-agent problems can be assessed and quantified as betas, before market entry and before deploying capital investments such as FDI. Risks concerning principal-agent problems and information asymmetry can be mitigated by developing informal incentive and compensation structures. To secure optimal interest alignment, the need for hostage games to strengthen contract negotiations is relevant and payoffs should be an integrated part of partner analysis. The research design relies on a qualitative research method and applies a multiple case study. The research method and the developed models can be applied on a larger data sampling, where generalizations can be extracted from quantitative data collection. The research analysis aims to identify causal operational indicators in the cases, which is known as causal inference analysis. The independent variable (entry mode) and the dependent variable (the degree of asymmetric information) are influenced by these causal indicators, which can estimate the probability of information asymmetry. The limitations of the research are related to the number of cases, where a broader and more quantitative approach including a larger number of cases, will contribute to the reliability of the research study. Moreover access to contract negotiations in collaborative arrangement will contribute with valuable insights to how principal-agent problems are anticipated ex ante. This paper presents a model for estimating risks emanating from information asymmetry and quantifying these risks as beta for use in capital budgeting models. Existing internationalization theory and transaction cost theory are limited in incorporating risks emanating from information asymmetry. The theories must adapt a more modified approach to the risks concerning information asymmetry and principal-agent problems in FDI and collaborative arrangements. The value of revaluating incentive and compensation structures in collaborative arrangements is discussed and the paper concludes that MNC can benefit from ex ante analysis of principal-agent problems.

EducationsGraduate Diploma in International Business, (Diploma Programme) Final Thesis
LanguageDanish
Publication date2012
Number of pages67