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

Arjen H. L. Slangen*, Sjoerd Beugelsdijk

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

156 Citations (Scopus)

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. Journal of International Business Studies (2010) 41, 980-995. doi:10.1057/jibs.2010.1

Original languageEnglish
Pages (from-to)980-995
Number of pages16
JournalJournal of International Business Studies
Volume41
Issue number6
DOIs
Publication statusPublished - Aug-2010

Keywords

  • multiple regression analysis
  • cultural distance
  • foreign direct investment
  • governance quality
  • contingency perspective
  • multinational activity
  • DIRECT-INVESTMENT
  • UNITED-STATES
  • EMPIRICAL-ANALYSIS
  • ENTRY MODE
  • MANUFACTURING INVESTMENT
  • NATIONAL CULTURE
  • JAPANESE FIRMS
  • TRADE-OFF
  • DETERMINANTS
  • CHOICE

Cite this