The survival of firms founded by immigrants: Institutional distance between home and host country, and experience in the host country

Abstract

Research Summary: We propose that the liability of foreignness (LOF) applies to individuals and not only to firms. To identify such a liability, we study entrepreneurial firms created by natives and immigrants. Firms created by immigrants have a lower rate of survival than those founded by natives. Work experience in the host country and size of the immigrant's national community improves the chances of survival of firms founded by immigrants, in particular, for firms founded by immigrants from institutionally distant countries. In contrast, the impact of firm age on survival is not significantly different for firms created by natives and immigrants. This indicates that learning by individuals before the creation of firms is more important than learning that occurs at the firm level after firms have been created.Managerial Summary: We explore how the characteristics of individuals running firms affect firm performance. We focus on foreignness and study the chances of survival of firms created by immigrants. Firms created by individuals who have longer work experience in the host country and who are integrated in larger national communities are more likely to survive than those created by their counterparts with less experience and smaller communities. The effect is stronger for immigrants from countries with different institutions to those of the host country. This indicates that, when choosing new countries to operate in, it is important to carefully choose the management team and the location within the host country, in particular, if the countries being considered are relatively dissimilar to the firm's home country.