Abstract
A multinational enterprise develops its subsidiary portfolio by investing in new foreign markets and subsequently pursuing further investments within these host countries. We find that firms which locate their first equity investment closer to the national capital city can subsequently expand their subsidiary portfolio within the host country at a higher speed. This effect is particularly strong in emerging economies. Further analyses of various contingencies support the robustness of our findings. We discuss different theoretical mechanisms which could cause these effects, in particular face-to-face interactions with governmental actors and opportunities to develop political connections. Our research contributes to the literature on internationalization processes by analyzing how the initial location choice affects the development of the subsidiary portfolio.
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