Liability of Foreignness and the Constitutive Legitimation of Foreign Firms in a Host Country

Yuping Zeng and Dean Xu

Journal of World Business, 2020, vol. 55, issue 5

Abstract: We examine population density effects on foreign firms’ likelihood to exit from a host country. The lack of constitutive legitimacy is an important aspect of the liability of foreignness experienced by foreign firms. Both foreign firms from a focal firm’s home country and foreign firms from other countries can provide constitutive legitimation for the focal firm. These intrapopulation and interpopulation legitimation effects strengthen with a greater psychic distance between the home and host countries; they also interact with and strengthen each other. Results based on a dataset containing 68,723 firm-year observations on 29,843 foreign firms in China support our predictions.

Keywords: Constitutive legitimation; density dependence; liability of foreignness; organizational ecology; psychic distance (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jwb.2020.101111

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