Which country matters? Institutional development and foreign affiliate performance

Christine M. Chan, Takehiko Isobe, Shige Makino

Research output: Contribution to journalArticle

193 Citations (Scopus)

Abstract

This article investigates the effect of the level of institutional development of host countries on the level of and variation in foreign affiliate performance. Institutional development is defined as the extent to which the economic, political, and social institutions in a host country are developed and are favorable for foreign affiliates. A longitudinal analysis of over 30,000 foreign affiliate-year cases that include 6,985 foreign affiliates in 38 host countries between 1996 and 2001 shows that foreign affiliate performance varies noticeably both across and within host countries. The results suggest that the level of institutional development, as determined by the Institutional Development Index (IDI), a new measurement developed in this study, has a strong negative curvilinear relationship with the variation in foreign affiliate performance and a negative effect on the level of foreign affiliate performance. The implications for future research, practice, and policymaking are discussed.

Original languageEnglish
Pages (from-to)1179-1205
Number of pages27
JournalStrategic Management Journal
Volume29
Issue number11
DOIs
Publication statusPublished - 2008 Nov

Keywords

  • Emerging economies
  • Institution-based view of foreign affiliate performance
  • Institutional development index
  • Legitimacy and competition
  • Risk and return in foreign direct investment
  • Strategic choice under uncertainty

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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