Psychic distance and outward foreign direct investment: the moderating effect of firm heterogeneity

Abstract

PurposeThis study investigates the effect of psychic distance (PD) on outward foreign direct investment (OFDI) by multinational firms originating in emerging economies and the moderating effect of firm heterogeneity on this relationship.Design/methodology/approachAn empirical analysis based on a negative binomial regression model is conducted using OFDI data from 2008 to 2017 on companies listed on the Shanghai and Shenzhen Stock Exchanges in China, an emerging economy.FindingsThe results suggest a U-shaped relationship between PD and OFDI by firms in emerging economies. Both executive foreign experience and state ownership negatively moderate the U-shaped relationship between PD and OFDI.Practical implicationsEmerging economies should encourage and guide multinational firms in engaging in OFDI and emphasize the advantages and disadvantages of PD for multinational firms. Additionally, non-sate-owned firms should recruit those who have a foreign education to provide support for OFDI by firms in emerging economies. Multinational firms should determine investment locations by consulting with executives with foreign experience to improve their ability to engage in OFDI.Originality/valueThis study combines macro and micro perspectives and integrates PD and firm heterogeneity into the same model with a sample of multinational firms originating in China. The findings support the existence of a PD paradox, which helps to enriching the theory on foreign direct investment.

Migrant networks, international experience, and OFDI by EMNEs: Evidence from China

“…Following prior studies (Chen et al, 2020;Yi et al, 2021), we take host country's economic scale (GDP), economic stability (Inflation), market potential (Growth), natural resource endowment (Nr), firm's separation of powers (Sep), shareholding concentration (Top1), firm size (Size), cash ratio (Cfo), firm leverage (Lev), firm age (Age), institutional distance (Inst), geographical distance (Dis), and cultural distance (CD) as control variables. The relevant variables and their definitions are shown in Table 1.…”

“…In turn, international experience reshapes firms' competitive advantages and resource endowments, and the impact of international migrant networks on Chinese firms' OFDI is likely to vary depending on the degree of international experience firms possess. Taken together, while some literature has attempted to discuss the boundaries of the role of host‐country immigrant networks in influencing Chinese firms' OFDI from a macro‐ and micro‐perspective (Chen et al, 2020; Yi et al, 2022), it has neglected the impact of the degree of international experience on the relationship between immigrant networks and OFDI by MNEs. Therefore, we introduce international experience into the research framework of this paper and attempt to further analyze the moderating effect of international experience on the relationship between migrant networks and OFDI by MNEs.…”

Business environment distance, absorptive capacity and innovation performance of EMNEs: evidence from China

“…On the other hand, from the perspective of the external environment, the greater the difference in business environment between home and host countries, the more likely it is for EMNEs to build an open and flexible firm culture by continuously adapting to the different rules and regulations of the two countries, and this open and flexible organizational atmosphere helps to enhance the willingness of organizational members to learn new knowledge from the outside world (Tian et al, 2009), which, in turn, promotes the absorptive capacity of the whole organization. The internationalization of enterprises requires both general and specialized knowledge (Chen et al, 2020a). General knowledge can usually be transferred between home and host countries more easily, while specialized knowledge is relatively difficult to transfer due to its Business environment distance and innovation implicit and ambiguous characteristics.…”

Technology-Independent Directors and Innovative Knowledge Assets: A Contingency Perspective

“…The main difference between state-owned firms and non-state-owned firms is the government involvement. From a resource dependence perspective, the ownership ties with government could bring firms with resource advantages [14], which will create a favorable climate for technology-independent directors to develop innovative knowledge assets. Firstly, from the perspective of financial resources, state-owned firms have advantages over non-state-owned to access [32].…”

“…Beyond the direct relationship, this paper next explores whether the effect of technology-independent directors on innovative knowledge assets may be enhanced or restricted by three fundamental firm characteristics, which are firm ownership, firm size, and firm age [14,15]. Previous research on the board of directors has paid some attention to whether the functions of boards of directors are equally important in all firms.…”