Formal and Informal Institutional Differences Between Home and Host Country and Location Choice: Evidence from the Spanish Hotel Industry

Abstract

Using secondary data of internationalized Spanish hotel chains, this research attempts to examine the role of formal and informal institutional differences between home and host country from the foreign location choice point of view. Generally speaking, the results show that (a) the higher the formal institutional differences the lower the attractiveness of the foreign location, (b) the negative effect of linguistic differences, as an informal institutional dimension, significantly affects the choice of location, and (c) the moderating role of linguistic differences between formal institutional factors with regards to the choice of location is contrary to our expectations. Based on the findings, this work wishes to offer not just a better understanding of the location choice decisions within the service industry but also to identify both the joint effect of formal and informal institutional factors as well as to distill their individual effects. This is of relevance since there seem to be no conclusive empirical evidence of such effects so far in the literature.