The asymmetric effect of institutional distance on international location: Family versus nonfamily firms

Abstract

Research Summary: This study examines international location choice by considering the potential effects of institutional distance on the decision comparing family and nonfamily firms. We argue that the magnitude and direction of institutional distance matter and that institutional distance has an asymmetric effect on location choice. However, we argue that family involvement has a moderating effect on this relationship because family firms manage institutional distance differently than nonfamily counterparts. Our results, using a sample of Italian firms (2000–2013), reveal that firms are more likely to choose locations for which the positive institutional distance is greater. Additionally, when compared to nonfamily firms, family firms are more likely to choose locations with greater negative institutional distance and less likely to enter countries with greater positive institutional distance. Managerial Summary: Institutional distance between countries is an important dimension firms take into account when deciding the location of their foreign investments. We show the importance of the magnitude and direction of this distance in choosing the destination country and the different impact that distance has for family firms. Institutional distance has an asymmetric effect on the international location choice. Specifically, greater positive institutional distance makes firms more likely to choose a location; on the contrary, greater negative institutional distance makes the location less attractive. Family firms, however, present some peculiarities that fine‐tune the effect of institutional distance on the location decision. Thus, family firms are more (less) likely to choose locations involving lower (higher) levels of institutional development than their home country compared to nonfamily counterparts.

Family firms in the global economy: Toward a deeper understanding of internationalization determinants, processes, and outcomes

“…Hernandez et al () compare family and nonfamily firms and study how institutional distance influences their international location choices. Specifically, they argue that family firms do not respond to institutional pressures in the same way as nonfamily firms.…”

Does Knowledge from Home Markets Boost Outward Foreign Direct Investments of Emerging Economy Multinationals? Evidence from Indian Family EMNEs

“…Family firms in emerging economies rely on their social capital to access and screen new business opportunities (Carney, 2005). They are able to leverage institutional voids and exploit opportunities through their relational capabilities capabilities (Hernández et al, 2018). While operating in multiple product markets, they are able to access market intelligence and synthesize it with existing information through their strong relationships with distributors, suppliers, channel partners and customers developed and nurtured over the long term (De Massis et al, 2013).…”

Do Countries with Similar Levels of Corruption Compete to Attract Foreign Investment? Evidence Using World Panel Data

“…However, contrary to expected conjectures, a few authors, such Bellos and Subasat [24] and Hausman and Fernández-Arias [40], conclude that less corrupt countries tend to invest more in higher corrupt economies. In order to resolve these ambiguous findings, recent studies highlight the need to consider the asymmetric effects of distance on foreign investment locations [29,41], with some authors arguing that the effects of corruption in the host country on FDI depend on the level of corruption in the home country [25][26][27][28].…”

“…Whereas a few authors have showed that the distance in corruption levels between the origin and destination countries has a negative impact on the attraction of FDI [20][21][22][23], others, reached opposite results [24]. Recently, new researches highlight the importance of home country corruption in FDI flows [25][26][27][28], suggesting that the direction of the institutional distance matters [29].…”