Business environment distance and innovation performance of EMNEs: The mediating effect of R&D internationalization

Abstract

Sustainable business environment plays an important role in creating conditions favorable to innovation. However, is this the case for all types of multinational enterprises (MNEs)? While recognizing the importance of sustainable business environment in innovation, we address this question by examining the impact of sustainable business environment distance on the innovation performance of emerging market multinational enterprises (EMNEs). A panel dataset of Chinese MNEs listed on the Shenzhen and Shanghai stock exchanges between 2005 and 2018 is employed. Our findings suggest that sustainable business environment distance positively affect the innovation performance of MNEs. R&D internationalization plays a mediating role in the relationship between business environment distance and innovation performance. Migrant networks can strengthen the positive impact of business environment distance on the parent company's R&D internationalization. Highly skilled migrants have a greater strengthening effect than do less skilled migrants on the relationship between business environment distance and R&D internationalization. Our study contributes to the literature by providing new insights into the relationship between business environment distance and outward foreign direct investment (OFDI).