"Subnational Institutions, Performance Feedback and Subsequent Expansion of A Foreign Subsidiary"

Abstract

Using 150,542 cases of foreign subsidiaries operating in an emerging economy from 2000 to 2005, this study examines the effect of subnational institutional development on the subsequent expansion strategy of a foreign subsidiary in fixed-assets investment in a subnational region within a host country. We find that a foreign subsidiary would take a large extent of subsequent expansion in the subnational regions where the levels of subnational economic and social institutional development are low, because these regional markets embrace great uncertainties, which requires the subsidiary to extend its internalized operation. In addition, our study shows that performance feedback of a foreign subsidiary plays significant negative moderating effects on the relationships between the levels of subnational political and social institutional development and the subsequent expansion of a foreign subsidiary. Our study contributes to international expansion literature by emphasizing subnational institutions within a h...