Distance factors and establishment mode choice of emerging‐market multinationals: The moderating effect of administrative distance

Abstract

Regulations, governance quality, and political structure are important factors that may alter the cost and difficulties associated with doing business in foreign markets. Emerging-market multinationals (EMNEs), with an imperative motivation to go abroad and to be competitive in a global landscape, should consider the impact of administrative distance, namely, the regulatory institutional differences between home and host countries. We suggest that the study of administrative distance is particularly important when addressing investment flows from emerging economies to developed ones, because of the differences between them. Drawing on transaction cost theory and institutional perspective, we analyze the moderating effect of administrative distance on the relationship between other cross-national distance factors-cultural, geographic and economic-and establishment mode choice of EMNEs. From a sample of 357 outward foreign direct investments carried out by Indian firms, our results show that administrative distance moderates the relationship between cultural, geographic and economic distance, and establishment mode decisions.

Cross-border acquisition or greenfield investment? The role of investor sentiment

“…Fourth, we control for additional control variables to mitigate endogeneity. Corruption in the host country, institutional distance, and geographical distance may affect the establishment mode ( Doh et al, 2003 ; Arslan and Larimo, 2011 ; Rienda et al, 2021 ). We further control for the incorruptibility in the host country, the institutional distance, and the country-fixed effect.…”

Institutional determinants of IJV partner choice in Europe: a host-country, a home-country or a third-country partner?

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