Characteristics of FDI and Internal Governance: Cases of Korean, Chinese and Japanese Online Companies

Purpose – This paper investigated the relationship between the FDIs and internal governance of online companies. The transaction cost theory and capital structure theories were applied to test the relationship. Design/Methodology/Approach – A total of 26, including 5 Korean, 15 Chinese, and 6 Japanese online companies among the world’s top 100 were selected. Using the annual report, the characteristics of FDI of Korean, Chinese, and Japanese online companies were examined. In addition, a regression analysis was conducted to explore whether the changed capital structure plays a role in the internal governance structure as online companies raise funds necessary for FDI. Findings – It is found that the management performance of local companies was better than that of MNCs. Local companies stay in their country as long as these excellent performances are maintained, however when the growth rate of sales stagnates, they start internationalize their business activities. The regression analysis found that Online MNCs with specific assets increase equity to finance their FDIs. This study found that debt and equity can be used not only as simple financial tools, but also as internal governance structures. Research Implications – Through internal governance and FDI, online companies internalize control and create an internal capital market, striving for growth deploying the company’s specific assets. This study verifies the transaction cost theory and capital structure theories.