Staying home or moving away? The effect of restructuring on employment in multinational enterprises

Abstract

This paper analyzes the geographic dispersion of employment restructuring in multinational enterprises, where we distinguish between headquarters and geographically dispersed affili- ates. To this end, we use data of 255 Belgian parents and 1,887 affiliates between 1996 and 2005. We show that for multinational enterprises that restructure headquarters have superior employment performance than their affiliates. This effect seems to be stronger for vertically integrated firms, which is consistent with theories of imperfect information and increased agency costs. We also show that proximity matters: restructuring hurts the most the further the affiliate is located from the headquarter. This effect is consistent with the monitoring difficulties that are associated with vertical FDI firms and with the role of social network effects.