When do transnational institutions matter for multinational corporations’ location choices?

Christine M. Chan, Lei Shi and Yiwei Li

Journal of Business Research, 2025, vol. 199, issue C

Abstract: This study examines the influence of transnational institutions, namely, Bilateral Investment Treaties and Preferential Trade Agreements, on multinational corporations’ (MNCs) location choices. Extant research in international business has found that MNCs tend to enter host countries with well-developed institutions, as host countries with underdeveloped institutions pose investment risks for MNCs. Little scholarly attention has been given to the co-existence of national institutions with transnational institutions that can transcend national borders to protect and govern MNCs’ cross-border activities, and to the interplay between transnational institutions, home- and host-country institutions, and the MNC’s intra-organisational institutional environment. We draw on institutional theory and insights from international political economy to argue that the influence of transnational institutions on MNCs’ location choices varies depending on host country institutional uncertainty, home country formal institutional voids, and MNC multiple embeddedness. Using a sample of 13,011 foreign market entries from 1,129 parent MNCs in 73 host countries between 2005 and 2017, we find that the influence of transnational institutions is stronger when the levels of host country institutional uncertainty and home country formal institutional voids are higher, but weaker for MNCs with a high degree of multiple embeddedness. Our study contributes to institutional theory by highlighting the interplay between higher-order transnational institutions and lower-order national and intra-organisational institutional environments, and to international business research by examining how and when transnational institutions matter for MNCs’ location choices. We also provide important insights for MNC managers and policymakers on effectively navigating complex institutional environments.

Keywords: Location choices; Transnational institutions; Host country institutional uncertainty; Home country formal institutional voids; MNC multiple embeddedness (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:199:y:2025:i:c:s0148296325003406

DOI: 10.1016/j.jbusres.2025.115517

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