The Impact of Home and Host Country Institutions on the Exit of Chinese Foreign Subsidiaries

Abstract

Purpose - This study aims to examine the impact of host country institutions on the exit of foreign subsidiaries, and tries to figure out how the home country institutions moderate the relationship between host country institutions and subsidiary exit. Design/Methodology/Approach - The sample of this study includes 7,098 foreign subunits established by 2,401 Chinese listed manufacturing firms in 121 countries. This study used Logit Regression to measure the effect of home and host country institutions on the exit of foreign subsidiaries. Findings - The results show that when entering countries with better institutional profile than China, the host country institutions negatively affect the exit of Chinese foreign subsidiaries and home country institutions have positive moderating effect. While, when entering countries with worse institutional profile than China, the host country institutions positively affect the exit of Chinese foreign subsidiaries and home country institutions have no moderating effect. Research Implications - This study makes a new attempt to empirically examines the moderating effect of home country institutions on foreign subsidiary’s exit decision while being subject to the host country institutions, which helps fill the gap in this area. Moreover, this study offers a certain understanding of the impact of both home and host country institutions on the survival of foreign subsidiaries in host countries, which may be helpful for future policy development and firms’ internationalization strategy development.