Strategic-Asset-Seeking FDI and Firm Innovation: An Instituional Perspective Highlighting IPRs

Abstract

A burgeoning stream of inquiry has drawn attention to the reverse spillover effect of outward foreign direct investment (OFDI) on performances of emerging market firms (EMFs) in home countries. However, we know little regarding how institutional conditions across host and home countries alter such an effect and thus have an incomplete picture of this relationship. In this study, we integrate insights from the reverse spillover perspective and the institution-based view to examine the influence of an important but underexplored type of OFDI—strategic-asset-seeking (SAS) OFDI—on firm innovation performance. We highlight intellectual property right (IPR) protections as institutions and distinguish them at different levels across environments—both at the host-country level and the home-subnational level—as boundary conditions of the reverse spillover effect. Using a sample of Chinese publicly listed firms, we find that home-subnational IPR protection strengthens the reverse spillover effect of OFDI and innovation performance, whereas host-country IPR protection weakens the effect. In addition, we show that an EMF’s R&D subsidies amplify such contrasting moderating effects, further enhancing the distinct mechanisms underlying IPR regimes between home and host countries.