Strategic asset-seeking foreign direct investments by emerging market firms: the role of institutional distance

Yang Yang, Jia Xu, Jonathan P. Allen and Xiaohua Yang

International Journal of Emerging Markets, 2022, vol. 18, issue 12, 6081-6101

Abstract: Purpose - This study examines the impact of formal and informal institutional distances on the foreign ownership strategies of emerging market firms (EMFs). Design/methodology/approach - This is an empirical study relying on two sets of data collected over two time periods, 2006–2008 and 2017–2019, for publicly-listed Chinese companies. Findings - Greater formal institutional distances in the host and home countries make EMFs less likely to use joint ventures (JVs), while greater informal distances make EMFs more likely to use the JVs. When both formal and informal institutional distances are high, the use of JVs is more likely. These results are affected by the goal of the foreign direct investment (FDI) project, with strategic asset-seeking (SAS) FDI projects favoring the use of wholly owned subsidiaries (WOSs). Research limitations/implications - This study relies on cross-sectional data from publicly-listed Chinese companies, which may limit the generalizability of the findings. Practical implications - EMFs investing in advanced countries should carefully assess the tradeoffs between transactional cost efficiency and legitimacy in making their foreign ownership decisions. If the goal is to access strategic assets, EMFs should consider WOSs to ensure the transfer of strategic assets and create value for the parent company. Originality/value - The findings show that formal and informal distances between institutions have different impacts on foreign ownership strategies, providing empirical evidence for the need to balance conflicting cost-efficiency and legitimacy considerations when businesses make such strategic decisions. The authors show how this balance depends on the goal of the FDI project.

Keywords: Institutional distances; Emerging market multinationals; Foreign direct investments; Joint ventures; Wholly owned subsidiaries (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-04-2020-0346

DOI: 10.1108/IJOEM-04-2020-0346

Access Statistics for this article

International Journal of Emerging Markets is currently edited by Prof Ilan Alon

More articles in International Journal of Emerging Markets from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().