In particular, Sakakibara and Yamawaki (2008) and Belderbos, Ito, and Wakasugi (2008) have pointed out that, under some specific conditions, parent firms' R&D activities contribute to theirs. Such R&D activities carried out by parent companies may be only part of the resources transferred from the parent companies. Moreover, the result is confirmed even after controlling for the number of overseas subsidiaries owned by parent companies as an additional explanatory variable.
Third, such a positive contribution of parent companies' intangibles to subsidiaries' output is mostly confirmed by the subsidiary's location, including the United States, China. They argue that only in the case of Japanese-owned US subsidiaries is parent R&D intensity positively correlated with subsidiary profits. They pointed out that the technology transfer from parent companies to their foreign subsidiaries, which is based on the relationship between (i) the royalty payment from the subsidiary to the parent companies and (ii) the subsidiary's value added, led to the improvement of the subsidiary's productivity.
This study intends to expand the list of resources provided by parent companies by considering these elements. Second, in addition to intangible assets, we include tangible assets and labor inputs used by parent companies. For additional analysis, we also use variables that take into account the number of employees in parent companies working at headquarters (𝐿𝐿_𝐻𝐻𝐻𝐻𝑠𝑠𝑠𝑠) and in non-main quarterly departments (𝐿𝐿_𝑇𝑇𝑛𝑛𝑇𝑇𝐻 𝐻𝐻𝐻𝑠𝑠𝑠𝑠).
To construct the variables accounting for parent companies' intangible capital stock (𝐼𝐼𝑇𝑇𝑡𝑡𝑇𝑇𝑇𝑇𝑠𝑠,𝑠𝑠), we follow the methodology used in Corrado, Software, Software and the inventory types (Target 2009 and investment) (Target 2009 and investment): ), ad (𝑉𝑉𝑆𝑆𝑟𝑟𝑠𝑠,𝑠&𝑠) and 𝑠,𝑠𝑠).
Empirical Analysis
In this sense, the coefficients related to parent companies' intangibles (i.e. 𝛾𝛾3 and 𝛿𝛿3) represent the within-subsidiary estimates of the impact of 𝐼𝐼𝑇𝑇𝑡𝑡𝑠𝑇𝑇 on 𝑉𝑉𝑉𝑠𝑠𝑠𝑠𝑠𝑠4. Second, as the most important result, from columns (2) and (3), we can confirm that the parent firms'. By comparing the contribution with other inputs (i.e. subsidiaries' labor and tangible assets as well as parent firms' labor and tangible assets), we can explicitly evaluate the economic impact associated with parent firms' intangible assets.
Regarding the first view, we measure the share of subsidiary value-added growth that comes from the growth of parent firms' intangible assets in total subsidiary value-added growth. This exercise implies that we might overestimate the performance of subsidiaries (e.g., TFP) if we omit the intangible assets of parent firms from the list of inputs. Regarding the second point of view, we calculate the contribution to the added value of subsidiaries, driven by the increase in the intangible assets of parent companies.
In other words, the above-mentioned reverse calculation shows that a significant part of the parent companies' expenditure on intangible investments is recovered through the increase in the value added of the subsidiaries. As we pointed out above, omitting such additional gain in the subsidiary's value added results in underestimating the return on the parent's intangible assets. It is important to analyze the environment under which such a contribution associated with parent firms' intangible assets to subsidiary production takes place, as it helps us understand the background mechanism.
Third, as we discuss more explicitly in the next section, the contribution of parent firms' labor appears to be larger in the production of small subsidiaries than in the base case (Table 2). Labor input of parent companies in headquarters: The above results show that the intangible assets of parent companies contribute positively to the production of subsidiaries. Because it is difficult to accurately measure the work of such an administrative function based on data, we estimate it using the number of employees in parent companies' headquarters.
The result confirms our suspicion and implies that the administrative function of parent companies is fulfilled. Number of parent companies' subsidiaries: In the baseline estimate, we examined the contribution of parent companies' intangible assets, unconditionally based on the number of parent companies' subsidiaries. Second, somewhat surprisingly, the marginal impact associated with parent firms' intangible assets becomes smaller by including 𝑆𝑠𝑠𝑠𝑠� in our estimate.
Since the coefficient associated with the number of subsidiaries shows a negative sign, this result implies that there is a negative relationship between the number of subsidiaries and the intangible assets of parent firms. 6 Note that it is more desirable to introduce the interaction term between the parent firms' intangible assets and the number of parent firms' subsidiaries so that we can explicitly examine the conditional impact.
Conclusion
Note that the coefficient associated with parent intangible assets in the case of US subsidiaries is consistent with the findings of Sakakibara and Yamawaki (2008), who report a positive relationship between Japanese parent firms' R&D investments and the profitability of their American subsidiaries. This contrasts with the results of Sakakibara and Yamawaki (2008) that there is no significant relationship between the R&D investments of Japanese parent companies and the profitability of their subsidiaries in those areas. In addition to the difference in the sample periods considered in this study and that in Sakakibara and Yamawaki (2008) (i.e., the broader coverage of resources (i.e., the intangible assets of parent companies) in the current study could lead to such differences.
This comparison again suggests the importance of including the wide range of resources that parent companies have in order to examine their subsidiaries. Fourth, further subsample analyzes based on parent company shares, intrafirm labor transfer, and industry would be helpful to make the implications of the empirical results more transparent. In the future, we intend to expand this research by considering the points mentioned above.
Heterogeneity and the FDI versus export decision of Japanese manufacturers”, Journal of the Japanese and International Economies. Determinants of Japanese Manufacturing Firms' Profitability in China and Other Regions: Does Localization of Purchasing, Sales, and Management Matter? The global economy. Quantitative Evaluation of the Determinants of Exports and Foreign Direct Investment: Firm Level Evidence from Japan, ‘The World Economy.
Intrafirm Technology Transfer by Japanese Manufacturing Firms in Asia,” in The Role of Foreign Direct Investment in East Asian Economic Development, NBER-EASE Volume. Notes: This figure plots the point estimates of the coefficient associated with parent firms' intangible assets in the four-year sliding window estimation as well as the 95% confidence band. Notes: This figure plots point estimates of the coefficient associated with parent firms' intangible assets in the cross-sectional estimate as well as the 95% confidence band.
Notes: This figure plots the point estimates of the coefficient associated with parent firms' intangible assets in a year-by-year cross-sectional estimate as well as the 95% confidence band for each region – US, China, EU countries and Asian countries excluding China. Notes: The table shows the summary statistics of the variables we use in the estimation. All the numbers except the three variables that take into account parent company attributes (ie, parent company intangibles, labor and tangible assets) and the number of subsidiaries, which are measured over parent company years, are all variables measured over subsidiary years.
Notes: The table summarizes the estimation results based on equations (1), (2) and (3) with the following three separately measured intangible assets: software (LN_Soft_p), advertising (LN_Adv_p) and R&D (LN_RD_p). The first column is the result shown in Table 2, while the second column summarizes the results based on the model, using the following two types of labor used in parent companies: Log of the number of employees in the headquarters of parent companies and that in non-head offices. divisions.
