The Determinants of Outward Foreign Direct Investment from Latin America and the Caribbean: An Integrated Entropy-Based TOPSIS Multiple Regression Analysis Framework

Cunha, Henrique Correa da; Singh, Vikkram; Xie, Shengkun

doi:10.3390/jrfm15030130

Cited by 11 publications

(6 citation statements)

References 75 publications

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“…The directionality of FID is well established in IB research (Hernández and Nieto, 2015;Konara and Shirodkar, 2018). Studies have shown that developed country firms are at an advantage when FID is towards more developed host countries, while emerging market firms know how to deal with institutional voids when operating in less developed host countries (Correa da Cunha, 2019;Correa da Cunha et al 2022b;Cuervo-Cazurra and Genc, 2011).…”

Section: Fid Moderating the Relationship Between CD And Performancementioning

confidence: 99%

“…We follow the approach proposed in previous research (Correa da Cunha, 2019; Correa da Cunha et al, 2022b;Hernández and Nieto, 2015;Konara and Shirodkar, 2018) and use a dummy variable (i.e. true or false condition) to compute distances in opposite directions separately.…”

Section: The Direction Of the Distancesmentioning

confidence: 99%

“…Depending on the direction, the effects of CD can be positive or negative (Correa da Cunha et al 2022;Magnani et al, 2018;Selmer et al, 2007). The directionality of formal institutional distance (FID) has been extensively supported by theoretical arguments and empirical evidence showing that the quality of formal institutions in the host country reduces transaction costs and impacts financial performance positively (Correa da Cunha et al 2022b;Klasing, 2013;Maseland, 2013;Zaheer et al 2012, Hernández andNieto, 2015).…”

Section: Introductionmentioning

confidence: 99%

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The Interplay of Formal Institutional and Cultural Distances and the Financial Performance of Foreign Subsidiaries in Latin America

Cunha¹,

Amal²,

Andersson³

et al. 2023

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We investigate how formal institutional distance (FID) moderates the relationship between cul-tural distance (CD) and the financial performance of foreign subsidiaries firms. Following recent research, we estimate the asymmetric effects of CD by considering its size and direction towards host countries on the opposite poles of each cultural dimension` scale. We propose that a limited understanding of the formal institutions in the host country, as measured by the magnitude and direction of the FID, can have a positive moderating effect, increasing the impact of CD on finan-cial performance. This is mainly because foreign subsidiary firms may be more reliant on their ca-pacity to navigate the less formal (and more implicit) aspects of the host country's institutional environment, such as their ability to cope with the CD. We use foreign subsidiary data from the Orbis database including 22 developed and 22 developing home countries and over 1400 foreign subsidiaries during a period of 3 consecutive years operating in 10 of the largest economies (host countries) in Latin America including: Argentina, Brazil, Colombia, Chile, Ecuador, Mexico, Panama, Peru, Uruguay, and Venezuela. Findings confirm the asymmetric effects of CD, howev-er, by considering the direction of FID, our findings reveal that the higher the FID towards less developed host countries, the more significant the effects of CD on the financial performance. These findings contribute to the knowledge of how formal and informal institutional distances in-teract by showing that the greater the FID towards less developed host countries, to higher the impact of CD on the financial performance of foreign subsidiary firms.

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Section: Fid Moderating the Relationship Between CD And Performancementioning

confidence: 99%

Section: The Direction Of the Distancesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Interplay of Formal Institutional and Cultural Distances and the Financial Performance of Foreign Subsidiaries in Latin America

Cunha¹,

Amal²,

Andersson³

et al. 2023

Preprint

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“…Comparisons between countries can involve informal (Slangen and Beugelsdijk 2010) and formal institutions, including laws, regulations, and enforcement characteristics (Estrin et al 2009;Slangen and Beugelsdijk 2010). Formal institutions refer to governance mechanisms that govern and support business activity and human interaction (North 1990;Pejovich 1999;Correa da Cunha et al 2022b). However, it is wrong to compare countries based on "better" or "worse" cultural traits.…”

Section: Introductionmentioning

confidence: 99%

The Moderating Effects of Host Country Governance and Trade Openness on the Relationship between Cultural Distance and Financial Performance of Foreign Subsidiaries in Latin America

Correa da Cunha,

Ruzgar

2024

Preprint

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<p>Cultural distance (CD) is an important driver of foreign expansion strategy at the firm level. However, its effects can be more or less significant depending on the contextual characteristics of the host country, such as the quality of formal institutions and the openness to international trade. Therefore, it is argued that strong formal institutions in the host country can effectively reduce the adverse impact of CD. Additionally, due to the more frequent interactions with foreign cultures, countries open to foreign trade can positively accommodate the effects of CD. The study tests these assumptions using data from the Orbis database and the World Bank and finds a reduction in the adverse impact of CD on the financial performance of foreign subsidiary firms with robust formal institutions in the host country. Moreover, the negative effects of CD increase with higher degrees of trade openness. Thus, the results indicate that foreign subsidiary firms operating in host countries that are more open to foreign trade will have to conform to the higher expectations from the local culture.</p>

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“…These firms operated in the 10 largest host countries in Latin America (according to GDP) over a period of 3 consecutive years ranging from 2013 to 2015. In the past few decades, Latin America has gone through profound political and economic reforms which created more favorable conditions to attract foreign firms into the region (Aguilera et al 2017;Correa da Cunha et al 2022b). These changes included the reduction in protectionist policies that were implemented during the import substitution industrialization (ISI).…”

Section: Introductionmentioning

confidence: 99%

Formal vs. Informal Institutional Distances and the Competitive Advantage of Foreign Subsidiaries in Latin America

2022

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By focusing on the tacit and explicit characteristics of informal and formal institutional distances, this study investigates the competitive advantage of foreign subsidiary firms from developed countries and emerging markets operating in Latin America. Following recent research on distances in international management, this study measured the size and direction of distances and computed formal institutional distances based on the world governance indicators from the World Bank, whereas informal institutional distances are calculated using the four original dimensions of Hofstede. Considering that culture is tacit, whereas formal institutions are explicit, it is argued that these differences affect the ability to convert experience dealing with cultural and formal institutional conditions in the home country into firm specific advantages (FSAs) in a foreign host country. These assumptions are tested quantitatively using data from the Orbis database, a sample that includes over 4200 firm-year observations covering 10 of the largest economies in Latin America. In a departure from previous studies investigating the implications of FID direction, it is shown that the effects in specific directions are different for foreign subsidiaries from developed countries and from emerging markets. The results reveal that emerging market firms are at an advantage when operating in less developed host countries, whereas foreign subsidiaries from developed countries can adjust more positively when operating in host countries with strong formal institutions. On the other hand, the effects of the different CD dimensions depend on the direction towards host countries with specific cultural profiles. These findings indicate that foreign subsidiaries from emerging markets have a clear advantage in dealing with institutional voids in Latin America (i.e., FID towards less developed host countries), whereas the effects of CD are the same for all firms. This suggests that the cultural profile of the host country is what really matters.

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The Determinants of Outward Foreign Direct Investment from Latin America and the Caribbean: An Integrated Entropy-Based TOPSIS Multiple Regression Analysis Framework

Cited by 11 publications

References 75 publications

The Interplay of Formal Institutional and Cultural Distances and the Financial Performance of Foreign Subsidiaries in Latin America

The Interplay of Formal Institutional and Cultural Distances and the Financial Performance of Foreign Subsidiaries in Latin America

The Moderating Effects of Host Country Governance and Trade Openness on the Relationship between Cultural Distance and Financial Performance of Foreign Subsidiaries in Latin America

Formal vs. Informal Institutional Distances and the Competitive Advantage of Foreign Subsidiaries in Latin America

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