Institutional Distance and Foreign Subsidiary Performance in Emerging Markets: Moderating Effects of Ownership Strategy and Host-Country Experience

Vikrant Shirodkar () and Palitha Konara
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Vikrant Shirodkar: Management and Economics, University of Sussex
Palitha Konara: University of Huddersfield

Management International Review, 2017, vol. 57, issue 2, No 2, 179-207

Abstract: Abstract Institutional distance has been known to be an important driver of Multinational Enterprises’ strategies and performance in host countries. Based on a large panel dataset of 10,562 firms operating in 17 emerging markets and spanning 80 home countries, we re-examine the relationship described by Gaur and Lu (J Manage 33(1):84–110, 2007) between regulatory institutional distance and subsidiary performance. We extend this research by (1) examining this relationship in the context of emerging markets, (2) examining the moderating effects of ownership strategy and host-country experience within the context of emerging markets and (3) accounting for a greater variety of institutions by including a large number of home and host countries. We find that institutional distance negatively affects subsidiary performance in emerging markets. Our findings also show that the negative effects of institutional distance on subsidiary performance are lesser for subsidiaries with partial ownership (than for subsidiaries with full ownership) and for subsidiaries with greater host-country experience. We discuss our findings with respect to Gaur and Lu’s model, which explores the relationships between these variables in a general context.

Keywords: Institutional distance; Subsidiary performance; Emerging markets; Multinational enterprises (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11575-016-0301-z

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