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Liability of Foreignness and the Constitutive Legitimation of Foreign Firms in a Host Country

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  • Zeng, Yuping
  • Xu, Dean

Abstract

We examine population density effects on foreign firms’ likelihood to exit from a host country. The lack of constitutive legitimacy is an important aspect of the liability of foreignness experienced by foreign firms. Both foreign firms from a focal firm’s home country and foreign firms from other countries can provide constitutive legitimation for the focal firm. These intrapopulation and interpopulation legitimation effects strengthen with a greater psychic distance between the home and host countries; they also interact with and strengthen each other. Results based on a dataset containing 68,723 firm-year observations on 29,843 foreign firms in China support our predictions.

Suggested Citation

  • Zeng, Yuping & Xu, Dean, 2020. "Liability of Foreignness and the Constitutive Legitimation of Foreign Firms in a Host Country," Journal of World Business, Elsevier, vol. 55(5).
    • Handle: RePEc:eee:worbus:v:55:y:2020:i:5:s1090951620300390
    DOI: 10.1016/j.jwb.2020.101111
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