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Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships?

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  • Majid Abdi

    (Newcastle Business School, University of Newcastle, Callaghan, Australia)

  • Preet S Aulakh

    (Schulich School of Business, York University, Toronto, Canada)

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    Abstract

    Interfirm relationships among partners from institutionally distant environments are subject to governance difficulties, owing to the paucity of shared cognitive and regulatory frameworks. We examine the potential of formal contracting and relational governance developed at the partnership level to overcome the formal and informal institutional gap at the country level. Empirical results from a sample of 184 international partnerships of large US firms support an overall substitutive relationship between informal institutional frameworks and interorganizational relational arrangements whereby the performance benefits of relational governance are reinforced at higher degrees of informal institutional distance. Contrastingly, formal institutional frameworks and contractual governance are found to have a complementary relationship, with performance gains from formal contracting undermined at higher degrees of formal distance.

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    Bibliographic Info

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

    Volume (Year): 43 (2012)
    Issue (Month): 5 (June)
    Pages: 477-497

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    Handle: RePEc:pal:jintbs:v:43:y:2012:i:5:p:477-497

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    Cited by:
    1. Aguilera-Caracuel, Javier & Hurtado-Torres, Nuria Esther & Aragón-Correa, Juan Alberto & Rugman, Alan M., 2013. "Differentiated effects of formal and informal institutional distance between countries on the environmental performance of multinational enterprises," Journal of Business Research, Elsevier, Elsevier, vol. 66(12), pages 2657-2665.
    2. A. Heughebaert & T. Vanacker & S. Manigart, 2012. "Institutional Frameworks, Venture Capital and the Financing of European New Technology-Based Firms," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 12/809, Ghent University, Faculty of Economics and Business Administration.
    3. Martin, Xavier, 2013. "Solving theoretical and empirical conundrums in international strategy research by matching foreign entry mode choices and performance," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-5637252, Tilburg University.
    4. Davide Castellani & Giulio Giangaspero & Antonello Zanfei, 2013. "Heterogeneity and distance. Some propositions on how differences across regions, firms and functions affect the role of distance in FDI location decisions," Working Papers, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini 1308, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.

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