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


  • Majid Abdi

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

  • Preet S Aulakh

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


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.

Suggested Citation

  • Majid Abdi & Preet S Aulakh, 2012. "Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(5), pages 477-497, June.
  • Handle: RePEc:pal:jintbs:v:43:y:2012:i:5:p:477-497

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    References listed on IDEAS

    1. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    2. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
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    Cited by:

    1. Martin, Xavier, 2013. "Solving theoretical and empirical conundrums in international strategy research by matching foreign entry mode choices and performance," Other publications TiSEM 7645ea46-0b9a-4fc0-ae33-a, Tilburg University, School of Economics and Management.
    2. Meuleman, Miguel & Jääskeläinen, Mikko & Maula, Markku V.J. & Wright, Mike, 2017. "Venturing into the unknown with strangers: Substitutes of relational embeddedness in cross-border partner selection in venture capital syndicates," Journal of Business Venturing, Elsevier, vol. 32(2), pages 131-144.
    3. Lewellyn, Krista B. & Bao, Shuji ‘Rosey’, 2014. "A cross-national investigation of IPO activity: The role of formal institutions and national culture," International Business Review, Elsevier, vol. 23(6), pages 1167-1178.
    4. Hitt, Michael A. & Li, Dan & Xu, Kai, 2016. "International strategy: From local to global and beyond," Journal of World Business, Elsevier, vol. 51(1), pages 58-73.
    5. repec:bla:stratm:v:38:y:2017:i:3:p:645-656 is not listed on IDEAS
    6. repec:eee:intman:v:23:y:2017:i:3:p:255-267 is not listed on IDEAS
    7. repec:eee:iburev:v:27:y:2018:i:1:p:34-45 is not listed on IDEAS
    8. repec:bla:stratm:v:38:y:2017:i:1:p:114-140 is not listed on IDEAS
    9. repec:eee:worbus:v:52:y:2017:i:6:p:798-808 is not listed on IDEAS
    10. López-Duarte, Cristina & González-Loureiro, Miguel & Vidal-Suárez, Marta M. & González-Díaz, Belén, 2016. "International strategic alliances and national culture: Mapping the field and developing a research agenda," Journal of World Business, Elsevier, vol. 51(4), pages 511-524.
    11. Jean-Luc Arregle & Toyah L Miller & Michael A Hitt & Paul W Beamish, 2016. "How does regional institutional complexity affect MNE internationalization?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(6), pages 697-722, August.
    12. Mario Kafouros & Murod Aliyev, 2016. "Institutions and Foreign Subsidiary Growth in Transition Economies: The Role of Intangible Assets and Capabilities," Journal of Management Studies, Wiley Blackwell, vol. 53(4), pages 580-607, June.
    13. 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, vol. 66(12), pages 2657-2665.
    14. Hüttenbrink, Alexander & Oehmichen, Jana & Rapp, Marc Steffen & Wolff, Michael, 2014. "Pay-for-performance – Does one size fit all? A multi-country study of Europe and the United States," International Business Review, Elsevier, vol. 23(6), pages 1179-1192.
    15. 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 12/809, Ghent University, Faculty of Economics and Business Administration.
    16. 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 1308, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.
    17. Reddy, Kotapati Srinivasa, 2015. "Why do Cross-border Merger/Acquisition Deals become Delayed, or Unsuccessful? – A Cross-Case Analysis in the Dynamic Industries," MPRA Paper 63940, University Library of Munich, Germany, revised 2015.

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