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The possibility of institutional distance exerting an asymmetric effect on the entry strategies of multinational enterprises (MNEs) has attracted recent scholarly attention. In this context, we re-examine the relationship described by Hernandez and Nieto (2015) on the effect of the direction of regulatory institutional distance on MNEs’ choice of entry mode in host countries. We extend this research by (1) focussing on the context of emerging markets and (2) accounting for a greater variety of MNEs as well as institutions by including both large and small firms, and a larger set of home and host countries. In contrast to Hernandez and Nieto’s study, we find that, in the context of emerging markets, institutionally distant MNEs are more likely to choose the full-ownership mode when they originate from an institutionally stronger country in comparison to the host (emerging) country, and they are more likely to choose the joint-ownership mode when they originate from an institutionally weaker country. We discuss our findings with respect to Hernandez and Nieto’s study, which explores this relationship more generally (i.e. beyond emerging-market contexts), however in the context of small and medium enterprises.

Understanding institutional distance – i.e., the difference in institutional context between countries – is critical for firms whose operations span national boundaries. Institutional distance impacts the relative attractiveness of country markets, trade-offs among foreign market entry strategies, the management of subsidiaries abroad, and ultimately, firm performance. Although scholars in various disciplines have made great advances in defining and measuring the institutional characteristics of nations, we contend that many of these advances have occurred in a parallel fashion. Moreover, extant empirical studies focus disproportionately on the impact of different subsets of the identified institutional characteristics. We suggest that it is time to find common ground across the disparate literatures. Doing so would allow us to view differences in institutional contexts more holistically, and refine our understanding of their implications for multinational corporations.

Research suggests that context matters for MNEs’ international business strategy. MNEs’ strategies vary when different intertwined contexts interact with each other. While International Business scholars understand well the influence of the institutional environments on firms’ international strategies and operations, some contextual differences are less understood as is the case involving African countries and firms. In this study we investigate how different institutional contexts and legitimacy challenges combine to impact ownership strategic choices of African firms in their cross-border acquisitions (CBAs). Specifically, we study the influence of the host country institutional development and two institutional dimension distances: administrative distance and knowledge distance. Methodologically, we use a sample of 314 CBAs made by acquirers from 24 African countries in 71 host countries worldwide to test a number of theoretically driven hypotheses. This study contributes to our understanding of how foreign investors from less institutionally developed countries that are more likely to face higher legitimacy barriers use ownership strategies to achieve legitimacy abroad.

In this chapter, we aim to shed more light on the role of formal institutional distance in firms’ foreign entry mode choices by accounting for the direction of that distance. Specifically, we distinguish between foreign entries where the host country is institutionally less developed than the investing firm’s home country (negative institutional distance) and those where the host country’s institutions are comparatively more developed (positive institutional distance), and explore whether these different types of entries are implemented through different equity-based modes. We take an information economics perspective to develop hypotheses on the effects of positive and negative formal institutional distance on firms’ choices between greenfields and acquisitions, and between full and partial ownership of greenfield and acquired subsidiaries. We test our hypotheses on a sample of 1,070 foreign entries made by 796 emerging market multinationals originating from 14 countries. Controlling for the host country’s formal institutional quality and other factors, we find that negative institutional distance increases the likelihood that a foreign entry takes the form of a greenfield investment rather than an acquisition and that positive institutional distance decreases that likelihood. We also find that negative institutional distance increases the chances that firms choose greenfield joint ventures over wholly owned greenfields and full over partial acquisitions. Finally, we find that positive institutional distance does not affect firms’ ownership stake choices, neither for greenfields nor for acquisitions. Overall, these findings argue for a nuanced, contingency view of the role of formal institutional distance in foreign entry mode choices. To the best of our knowledge, this study is the first to use information economics to construct a holistic picture of firms’ equity-based entry mode choices, taking into account both establishment and ownership modes.

This research seeks to understand how shareholder constituencies including controlling family, nonfamily insiders, as well as domestic and foreign institutions in the corporate governance system of emerging economy firms perceive institutional risks in terms of regulative, normative, and cognitive institutions and influence strategic choices in the internationalization of their invested firms.

The sample data are Taiwanese publicly listed companies in the electronics and computer industry. Panel data of the parent firms and their overseas affiliates are available from the annual report and Taiwan Economic Journal database. Country-level data are available from the World Investment Report and the IMD World Competitiveness Report. Statistical regression models including tobit and logistic regression are used to analyze the data.

Controlling family and nonfamily insider shareholders tend to influence their invested firms to enter in institutionally smaller host countries through a shared ownership. Domestic institutional shareholders tend to influence their invested firms to adopt a shared ownership and enter in host countries with larger and smaller institutional distances in terms of regulative and normative institution, respectively. Foreign institutional shareholders tend to influence their invested firms to enter in institutionally smaller host countries through a whole ownership.

The strategic choices of foreign market entry made by emerging economy firms are significantly shaped by the different risk perceptions of shareholder constituencies in their corporate governance system toward the institutional distances between the home and the host country.

This chapter investigates the effect of the geographical distance between institutional investors and firms on managers' financial misconduct. The evidence shows that the likelihood of committing financial misconduct by management is positively associated with distance. The distance effect is more prominent for firms with higher information asymmetry and more dedicated institutional investors. In line with the balance between risk-taking and benefit extraction from misconduct, the severity of financial misconduct is higher for firms closer to their institutional investors. Results show that geographical proximity can significantly reduce the cost of information production and facilitate monitoring through access to soft information.

This chapter investigates the theoretical support for the distance metaphor that is widely used to capture the effects of institutional diversity in international business (IB) and management studies. It argues that neither new institutional economics (NIE) nor in neo-institutional sociology (NIS) offers support for a focus on the degree of dissimilarity. Rather, both literatures emphasize dis-commonality as a problem for cooperation. In the NIE argument, common enforcement mechanisms are needed to reduce transaction costs. In the NIS argument, effective communication and cooperation is limited to meaning-giving structures common to all parties. In neither perspective, the degree of difference in structures that are not common is relevant. We propose an alternative metaphor, institutional overlap, to capture the effects of institutional diversity on IB transactions. We argue that such a concept differs from institutional distance in being agency-centered, sensitive to intra-country variation, non-additive, and driving the thickness rather than the costs of transactions.

Institutions and culture as well as their distance between home and host countries matter for international business activities. Yet, the exact nature of this influence is still not fully understood. In this chapter, we develop the concept of institutional and cultural compatibility and propose empirical measures of both to contribute to our understanding in this regard. We argue that the institutional and cultural profiles of home and host countries can create synergies that facilitate bilateral foreign direct investment (FDI) flows (that is being compatible) even if they are characterized by high distances. We apply our measures of compatibility to a sample of bilateral FDI flows between 127 host and 122 home countries over 12 years.