What Matters Most? Balancing Formal and Informal Institutions in the FDI Process (WITHDRAWN)

Abstract

We investigate the impact of formal and informal institutions on two key decisions of multinationals (MNEs) when they expand abroad, namely, location and establishment mode. We study the role of cultural distance between home and host markets and the institutional development of host markets, as dimensions that can help to capture the essence of informal and formal institutions, respectively, in these two key decisions. While previous research has shown inconsistent results in some institutional contexts about the effect of formal and informal institutions in these two internationalization choices, we complementarily consider both types of institutions in explaining location and establishment mode choice. Our empirical results give support to the institution-based view of international strategy by showing that balancing formal and informal institutions is crucial for explaining how MNEs behave.