How the Direction of Institutional Distance Influences Foreign Entry Mode Choices: An Information Economics Perspective

Strong alien or weak acquaintance? The effect of perceived institutional distance and cross-national uncertainty on ownership level in foreign acquisitions

“…Despite the prevailing view that institutional distance consistently increases the complexity of managing an MNE and the difficulty of gaining legitimacy in a foreign market (Kostova and Zaheer, 1999;Xu and Shenkar, 2002), scholars are increasingly recognizing potential positive effects as well as asymmetry of institutional distance. A stream of research based on these assumptions has examined the effects of institutional distance on foreign direct investment (FDI) flows (Aleksynska and Havrylchyk, 2013), international location choices (Hern andez et al, 2018), foreign entry mode (Hern andez and Nieto, 2015;Konara and Shirodkar, 2017;Mueller et al, 2017;Trąpczy nski et al, 2020) and foreign affiliate's performance (Konara and Shirodkar, 2018;Trąpczy nski and Banalieva, 2016). The extent of resource commitment has far-reaching impact for firms expanding into a foreign market (Dikova and Brouthers, 2016); therefore, the focus of this study is on the ownership implications of institutional distance in international acquisitions.…”

“…Further, entry mode and ownership have not only drawn the most attention in the new approach to distance, but also generated much inconsistency and debate on the actual effect of institutions that we seek to resolve. More specifically, both "positive" and "negative" institutional distances have been found to have varying outcomes across studies, ranging from positive to non-significant, to negative impacts on ownership levels in foreign subsidiaries in different contexts (Hern andez and Nieto, 2015;Konara and Shirodkar, 2017;Mueller et al, 2017;Trąpczy nski et al, 2020). Focusing on either a single home country (Trąpczy nski et al, 2020), or MNEs from either emerging or developed economies (Konara and Shirodkar, 2017), can account for these inconsistencies.…”

“…Some studies are now distinguishing between negative and positive institutional distance by making the distinction between MNEs entering countries with higher-and lower-quality institutions than the origin country (Mueller et al, 2017;Trąpczy nski and Banalieva, 2016). The (6) sign to distance indicates whether the institutional environment of the target market is more or less developed than that of the country of origin.…”

“…Complementing the positive and negative distance, perceived institutional distance controls for the nonlinearity and asymmetric functionality of distance and creates a balanced effect. To avoid multidimensionality of institutional distance, which is another highlighted point by scholars (Zaheer et al, 2012), we just focus on perceived "formal" institutional distance on MNEs' ownership strategies, which has been widely used in the entry mode literature (Mueller et al, 2017).…”

How outward investment from emerging markets affects economic development at home: using the eclectic paradigm to synthesize two IB literatures

“…The EMNE internationalization literature has looked at such idiosyncrasies in great detail and has grown rapidly in various sub areas, focusing on unique foreign location preferences (e.g., Kang & Jiang, 2012), entry mode decisions (e.g., Müller, Hendriks, & Slangen, 2017), the influence of the state (e.g., Hong, Wang, & Kafouros, 2015), and innovation activities (e.g., Govindarajan & Ramamurti, 2011;Piperopoulos, Wu, & Wang, 2018), to name but a few. At the same time, scholars examined whether EMNEs are truly different from developed economy counterparts, and whether traditional IB theories continue to hold (Cuervo-Cazurra, 2012;Hernandez & Guillen, 2018;Guillen & Garcia-Canal, 2009).…”