This study aims to examine how ownership structure moderates the impact of local and global economic and political (EP) uncertainty shocks on the resource commitment by multinational companies (MNCs) to their subsidiaries in the Latin America and Caribbean (LAC) region. In addition, the authors explore the differences in these effects between LAC-based and non-LAC-based multinational parent companies.
Using a panel vector autoregression model, the authors analyze a data set of 941 MNC subsidiaries to evaluate the effects of EP uncertainty at the host country and global levels on multinational resource commitment in LAC.
Local EP uncertainty stimulates multinational resource commitment in subsidiaries in LAC, though responses differ by institutional origin: non-LAC-based parent companies act more assertively, while LAC-based parent companies remain cautious. Global EP uncertainty uniformly discourages MNC resource commitment. In addition, while higher degrees of ownership by parent companies enhance the capacity to manage local EP uncertainty, particularly among subsidiaries of LAC-based parent companies, it offers little protection against Global EP uncertainty for MNCs.
Firms should tailor their ownership strategies to different types of uncertainty, balancing local knowledge with flexibility to manage global risks effectively. Furthermore, firms need to pay more attention to the implications of the governance structure.
The results highlight the importance of stronger institutions and policies to support the subsidiary against EP shocks in the LAC region.
The authors contribute to the growing literature on uncertainty shocks by distinguishing between local and global EP uncertainty and demonstrating their distinct effects on multinational resource commitment to their subsidiaries in the host country. In addition, the authors explore how MNCs’ ownership levels affect their management of different types of uncertainty. The work highlights the need for a tailored model of investment decision by MNCs under different contexts of uncertainty.
