Research on the Impact of Institutional Distance on the Management Performance of Overseas Subsidiaries from China

Xiuyan Xi and Zheng Wang

GBP Proceedings Series, 2025, vol. 12, 153-161

Abstract: This thesis conducts an empirical analysis using unbalanced panel data comprising 6,883 observations from 3,073 overseas investment enterprises across 67 countries during 2014-2022 to examine the impact of institutional distance on multinational corporations' performance. The study explores institutional distance from three dimensions: political system distance, economic system distance, and cultural system distance, ultimately finding that institutional distance exerts a significant negative effect on the performance of transnational corporations. Among these dimensions, political system distance has the strongest impact, followed by economic system distance, and then cultural system distance, indicating that the greater the divergence between the host country and the home country's institutional environment, the more pronounced the negative effect on enterprise performance. Furthermore, group regressions comparing enterprises investing in Belt and Road countries with those in non-Belt and Road countries reveal that Chinese multinational enterprises operating in Belt and Road countries are comparatively less affected by institutional distance, and cultural institutional distance does not show a significant effect in this context. The analysis also indicates that transnational enterprises adopting sole proprietorship modes experience reduced vulnerability to political and cultural system distance. Additionally, the moderating role of technological innovation is examined, revealing that technological innovation amplifies the negative impact of political and economic institutional distance on enterprise performance while mitigating the adverse effect of cultural institutional distance. Based on these findings, the thesis offers several micro- and macro-level recommendations to support transnational enterprises in optimizing their foreign investment strategies and enhancing overall performance.

Keywords: overseas subsidiaries; institutional distance; enterprise performance; The Belt and Road; shareholding ratio of parent company (search for similar items in EconPapers)
Date: 2025
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