The asymmetric effect of institutional distance on international location: Family versus nonfamily firms

Abstract

Research Summary: This study examines international location choice by considering the potential effects of institutional distance on the decision comparing family and nonfamily firms. We argue that the magnitude and direction of institutional distance matter and that institutional distance has an asymmetric effect on location choice. However, we argue that family involvement has a moderating effect on this relationship because family firms manage institutional distance differently than nonfamily counterparts. Our results, using a sample of Italian firms (2000–2013), reveal that firms are more likely to choose locations for which the positive institutional distance is greater. Additionally, when compared to nonfamily firms, family firms are more likely to choose locations with greater negative institutional distance and less likely to enter countries with greater positive institutional distance.Managerial Summary: Institutional distance between countries is an important dimension firms take into account when deciding the location of their foreign investments. We show the importance of the magnitude and direction of this distance in choosing the destination country and the different impact that distance has for family firms. Institutional distance has an asymmetric effect on the international location choice. Specifically, greater positive institutional distance makes firms more likely to choose a location; on the contrary, greater negative institutional distance makes the location less attractive. Family firms, however, present some peculiarities that fine‐tune the effect of institutional distance on the location decision. Thus, family firms are more (less) likely to choose locations involving lower (higher) levels of institutional development than their home country compared to nonfamily counterparts.