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Social trust in subnational regions and foreign subsidiary performance: Evidence from foreign investments in China

Jane Wenzhen Lu, Yuanyang Song () and Mengmeng Shan
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Jane Wenzhen Lu: China Europe International Business School (CEIBS)
Yuanyang Song: East China University of Science and Technology
Mengmeng Shan: Shanghai University

Journal of International Business Studies, 2018, vol. 49, issue 6, 761-773

Abstract: Abstract Recent research suggests that subnational regions can explain the variation in foreign subsidiary performance. However, most studies either treat subnational regions as a whole or focus on formal institutions at the subnational level. This study examines how general social trust, an important dimension of informal institutions at the subnational level, affects foreign subsidiary performance. In a sample of 17,886 foreign investments in China in 2012, we find that the level of social trust in subnational regions has a positive effect on the performance of foreign subsidiaries, reducing the liability of outsidership faced by foreign subsidiaries. Our results also show that this positive effect is contingent on local embeddedness of the foreign subsidiaries. Our findings highlight the importance of incorporating informal institutions at the subnational level in examining strategies and strategy outcomes.

Keywords: social trust; institutional theory; informal institutions; subsidiary performance; liability of outsidership; hierarchical linear modeling (search for similar items in EconPapers)
Date: 2018
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