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The impact of institutional hazards on foreign multinational activity: A contingency perspective

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Author Info

  • Arjen H L Slangen

    (Amsterdam Business School, University of Amsterdam, the Netherlands)

  • Sjoerd Beugelsdijk

    (University of Groningen, the Netherlands)

Abstract

Prior studies have shown that institutional hazards in the form of formal governance deficiencies and informal cultural distance are both negatively related to the amount of foreign multinational activity in countries. We argue that the strength of these negative relationships varies systematically with the type of foreign activity (horizontal or vertical) and the type of institutional hazard (governance or cultural). Because institutional hazards striking vertical affiliates generally also have negative consequences for other parts of a multinational enterprise (MNE) while those striking horizontal affiliates do not, we hypothesize that institutional hazards are more negatively related to vertical foreign activity than to horizontal foreign activity. Since cultural hazards can generally be reduced or resolved once they materialize while governance hazards cannot, we also hypothesize that the impact of governance hazards on each type of foreign activity is more negative than the impact of cultural hazards on that type of activity. A panel data analysis of sales by US foreign affiliates to affiliated and local unaffiliated customers over the period 1996–2004 lends support to these hypotheses. Our findings thus show that the impact of institutional hazards on foreign MNE activity is more complex than previously assumed.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

Volume (Year): 41 (2010)
Issue (Month): 6 (August)
Pages: 980-995

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Handle: RePEc:pal:jintbs:v:41:y:2010:i:6:p:980-995

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Cited by:
  1. Dirk Christian Dohse & Robert Hassink & Claudia Klaerding, 2012. "Emerging multinationals, international knowledge flows and economic geography: a research agenda," Kiel Working Papers 1776, Kiel Institute for the World Economy.
  2. Hutzschenreuter, Thomas & Horstkotte, Julian, 2013. "Performance effects of international expansion processes: The moderating role of top management team experiences," International Business Review, Elsevier, Elsevier, vol. 22(1), pages 259-277.
  3. Julien Gooris & Carine Peeters, 2012. "Home-Host Country Distance and Governance Choices in Service Offshoring," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2012-007, ULB -- Universite Libre de Bruxelles.
  4. Christophe CARRINCAZEAUX (GREThA, CNRS, UMR 5113) & Marie CORIS (GREThA, CNRS, UMR 5113), 2012. "The Decision-Making Process of Relocations: What, Where, How and Why?," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2012-04, Groupe de Recherche en Economie Théorique et Appliquée.
  5. Julien Gooris & Carine Peeters, 2013. "Home-Host Country Distance in Offshore Governance Chocies," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2013-13, ULB -- Universite Libre de Bruxelles.
  6. Pietrovito, Filomena & Pozzolo, Alberto Franco & Salvatici, Luca, 2013. "Internationalization choices: an ordered probit analysis at industry-level," Economics & Statistics Discussion Papers esdp13071, University of Molise, Dept. EGSeI.
  7. Malhotra, Shavin & Zhu, PengCheng, 2013. "Paying for cross-border acquisitions: The impact of prior acquirers’ decisions," Journal of World Business, Elsevier, Elsevier, vol. 48(2), pages 271-281.
  8. Aggarwal, Raj & Kearney, Colm & Lucey, Brian, 2012. "Gravity and culture in foreign portfolio investment," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(2), pages 525-538.
  9. Hutzschenreuter, Thomas & Kleindienst, Ingo & Lange, Sandra, 2014. "Added Psychic Distance Stimuli and MNE Performance," Journal of International Management, Elsevier, Elsevier, vol. 20(1), pages 38-54.
  10. Karhunen, Päivi & Ledyaeva, Svetlana, 2012. "Corruption Distance, Anti-corruption Laws and International Ownership Strategies in Russia," Journal of International Management, Elsevier, Elsevier, vol. 18(2), pages 196-208.
  11. Pietrovito, Filomena & Pozzolo, Alberto Franco & Salvatici, Luca, 2012. "Exports vs. foreign direct investment: evidence from cross-country industry data," Economics & Statistics Discussion Papers esdp12064, University of Molise, Dept. EGSeI.
  12. Beugelsdijk, Sjoerd & Slangen, Arjen & Maseland, Robbert & Onrust, Marjolijn, 2014. "The impact of home–host cultural distance on foreign affiliate sales: The moderating role of cultural variation within host countries," Journal of Business Research, Elsevier, Elsevier, vol. 67(8), pages 1638-1646.
  13. Beugelsdijk, S. & Hennart, J.M.A. & Slangen, A.H.L. & Smeets, R., 2010. "Why and how FDI stocks are a biased measure of MNE affiliate activity," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-3982853, Tilburg University.
  14. Bowe, Michael & Golesorkhi, Sougand & Yamin, Mo, 2014. "Explaining equity shares in international joint ventures: Combining the influence of asset characteristics, culture and institutional differences," Research in International Business and Finance, Elsevier, Elsevier, vol. 31(C), pages 212-233.

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