Country's Institutional Environment Research Articles

Towards a balanced multiculturalism? Immigrant integration policies and immigrant children's educational performance

AbstractThe present study examines whether a host country's institutional environment of immigrant integration influences immigrant youth's integration into its educational system. Ensuring immigrant youth are well integrated into the educational system bears paramount societal significance because the educational pathways of these youth will determine not only their own life trajectories but also the future of society as an integrated whole. Based on a dataset that links PISA 2015 with MIPEX 2010, a series of cross‐national multilevel analyses has been conducted for 227,028 children in 34 OECD countries. Two important patterns stand out in the results. First, the academic performance of immigrant children tends to be more comparable to that of their non‐immigrant peers in countries characterized by a more egalitarian distribution of civic rights. Second, the performance gap for immigrant children appears smallest in countries characterized by a medium level of sociopolitical promotion of group‐based cultural rights. These patterns suggest that policy efforts toward balancing between diversity and unity combined with systemic levers for egalitarian civic rights may contribute to the macro‐level institutional environment in which social disadvantages of immigrant students can be mitigated.

Board diversity reforms: Do they matter for EU bank performance?

AbstractWe examine the impact of governance reforms related to board diversity on the performance of European Union banks. Using a difference‐in‐difference approach, we document that reforms increase bank stock returns and their volatility within the first 3 years after their enactment. The type of reform matters, with quotas increasing return volatility. The effectiveness of reforms depends on a country's institutional environment. The impact of reforms on return volatility is found to be beneficial in countries more open to diversity, with common law system and with greater economic freedom. Finally, reforms play a bigger role in banks that have ex ante less heterogeneous boards.

The impact of institutional quality on Chinese foreign direct investment in Africa

The purpose of this paper is to analyse the impacts of the host country institutional environment on Chinese foreign direct investment in Africa. As one of the few papers to explicitly address the role of institutions on China–Africa foreign direct investment, our results highlight that countries who are able to provide a politically stable environment and control levels of corruption exert the greatest effects on Chinese foreign direct investment. After controlling for firm level motivation, the findings also reveal that as Chinese economic development evolves so does the apparent strategic direction of their investment patterns with greater attention now being given to investment quality and return on investment, rather than simply acquiring and extracting natural resources. From a policy perspective, the findings suggest three areas of development to promote increases in, and the sustainability of Chinese investment in Africa. First, the implementation of mechanisms to better control levels of corruption. Second, the promotion of long-term political stability to reduce investor uncertainty, and third, increased investment in supply-side initiatives to boost host country productivity to reflect the changing nature of Chinese investment patterns in Africa.

Local responsiveness strategy of foreign subsidiaries of Chinese multinationals: The impacts of relational-assets, market-seeking FDI, and host country institutional environments

We build upon the theoretical framework of firm-specific advantages (FSAs) and country-specific advantages (CSAs) to examine the determinants of the local responsiveness strategy of foreign subsidiaries of Chinese multinational enterprises (MNEs). Specifically, we focus on relational assets (R-assets is seen as a unique type of Chinese MNEs’ FSA), the market-seeking foreign direct investment (FDI) and host country institutional environments as drivers of the local responsiveness strategy. We empirically test our hypotheses using a survey data of the foreign subsidiaries of Chinese firms together with other secondary data sources. We find that both Chinese MNEs’ R-assets and the market-seeking oriented FDI are positively related to subsidiaries’ local responsiveness strategy in accommodating local customer needs, government policies, market conditions, and competitive intensity. Moreover, the impact of R-assets in motivating the local responsiveness strategy is stronger in a host country with a weak and underdeveloped institutional environment. While the evidence confirms the existence of the R-assets in influencing subsidiary level strategy, it also casts doubt on such relations-based firm resources in advanced host countries with highly developed institutions.

Host country experience, institutional distance and location choice of Chinese MNEs

PurposeThe conventional wisdom suggests that the lack of prior host country-specific experience and a higher institutional distance deter multinational enterprises (MNEs) from entering a foreign country. However, past studies report that Chinese MNEs show an unconventional risk-taking behavior choosing foreign locations, where they have no prior experience or there is an increased institutional distance. Drawing on the institutional theory, the purpose of this paper is to argue that Chinese Government official visits to the host country may act as a risk-reduction device, thus providing an explanation for such an unconventional behavior.Design/methodology/approachThe authors develop two hypotheses regarding how Chinese Government official visits moderate the impact of host country-specific experience and institutional distance on the location choice of Chinese MNEs. The authors test the hypotheses using a sample of investment location decisions by Chinese MNEs in Latin America.FindingsThe authors find that government official visits mitigate the lack of firm’s prior host country experience. However, only high-level government visits reduce institutional distance.Originality/valueThe authors contribute to the international business literature by analyzing how home country government diplomatic activities may pave the way of host country institutional environment for foreign MNEs from that home country. In addition, the authors provide an additional explanation for the unconventional risk-taking behavior of Chinese MNEs. Finally, the authors also contribute to a better understanding of the decision-making process of emerging-market MNEs entering other emerging economies.

MNEs' Agency Within Institutional Contexts: A Study of Walmart's Post-acquisition Practices in Mexico, Germany, and Japan

Abstract The issue of MNEs' adaptation to host country institutional environments in their post-cross-border acquisition implementation, and the outcomes thereof, remains underexplored in international management studies. The purpose of this paper is to assess the applicability of three institutional approaches — (1) the earlier variant of the neoinstitutional theory (ENIT), (2) its recent variant (RNIT), and the comparative institutional analysis approach (CIA) — to explain (non)adaptation behavior in host country environments. Using Walmart's acquisition cases, we show that the MNE adopted a non-adaptation behavior in Mexico and Germany—countries which represent vastly different institutional environments—and succeeded in the former, but failed and withdrew from the market in the latter. However, in the Japanese institutional environment, which is similar to the German one, Walmart engaged in selective adaptation and survived in the market. Based on the case data, we offer a critical assessment of the applicability of the three approaches. These three approaches provide a base on which to develop a model to explain the relationship between institutional influences, an MNE's organizational agency and adaptation behavior, as well as outcomes. Moreover, we discuss future research directions and provide implications for practitioners related to MNEs' adaptation behavior and the ensuing outcomes in host markets.

ФОРМУВАННЯ ІНСТИТУЦІЙНОГО МЕХАНІЗМУ ЗАБЕЗПЕЧЕННЯ ІННОВАЦІЙНОЇ ДІЯЛЬНОСТІ ПІДПРИЄМСТВ

The lack of financing for innovation, low activity of enterprises, the inappropriate cost sharing between basic research, applied research based on the analysis of the number of innovative enterprises, sources of funding for innovation activities, as well as the cost of research and development by type of work have been analyzed in the article. This situation does not contribute to the innovative development of the country. In addition to the lack of funding for innovation in Ukraine, there are problems in implementing the results of innovation. The country needs to move from a model of innovative development called "technology-driven" to a "demand-driven" model that is applied in an open market economy and the innovation process begins not with research, but with the assessment of business opportunities and preliminary assessment of the product market. This model provides funding for priority areas for innovation rather than spending on many potential investment projects that may not even reach the marketing stage. Also, the key objective of innovative development is the effective use of knowledge generated through research. Therefore, technology transfer is one of the components of the implementation of priority areas of innovation. Universities should become a key part of the National Innovation System. Technical universities from a purely educational and research institution must become a source of innovation and innovative business, and become an entrepreneurial university. It is necessary not only to teach innovative entrepreneurship, but also to encourage the creation of their own startups. Improving the institutional environment by strengthening its components will allow to achieve a positive economic effect, which is manifested in the creation of organizational and economic conditions for effective competitive development of the country while maintaining human capital. The purpose of the study is to develop and improve the components of the country's institutional environment for effective competitive development while preserving and developing human capital as a driving force for changing Ukraine's place in the global distribution of economic forces.

Home country institutions and export behaviour of SMEs from transition economies: the case of Russia

This study examines the relationship between home country institutional environment and export behaviour of small and medium-sized enterprises (SMEs) from transition economies. It is argued that perceived institutional challenges in home country may explain significant differences in exporting among firms. By focusing on Russia, as a context of transition economy, it is empirically tested how the perceived tax and financial barriers define export propensity of SMEs, and whether corruption concerns can play a role of a moderator and navigate firms' export activities. Data on 3136 Russian SMEs provide strong support for the effects of the perceived institutional dimensions on firms' propensity to export. The results offer a more fine-grained picture of institutional environment by contributing to the extant literature and show that the impact of home country institutions is dependent on the subjective perception which plays an important role in shaping export behaviour of Russian SMEs. The implications are discussed.

Subsidiary Entrepreneurship and Entrepreneurial Opportunity: An Institutional Perspective

Abstract A subsidiary's ability to identify opportunities in the host country and to subsequently exploit these opportunities could create competitive advantages for the Multinational Corporation. While research on subsidiary entrepreneurship has focused primarily on subsidiary-specific resources and capabilities, as well as environmental factors, the type of opportunities that the subsidiaries may find in the host environment has been underexplored. Drawing on the subsidiary entrepreneurship literature, institutional perspectives, and entrepreneurship research, this paper suggests that subsidiaries embedded in institutional contexts that are different from those of their home country have unique advantages that enable the identification of entrepreneurial opportunities. Accordingly, a theoretical framework is proposed, based on contingency perspectives on the different views of entrepreneurial opportunities in relation to business processes in the host country's institutional environment, vis-a-vis uncertainty levels and legitimacy requirements. In addition, appropriate strategic approaches are suggested, through which subsidiaries can exploit these entrepreneurial opportunities.

The Perceptions and Determinants of Auditing and Reporting Quality in the Asia‐Pacific Region

AbstractA country's institutional environment significantly influences perceptions of auditing and reporting quality (ARQ) at the national level. Relying on a relatively unique measure of ARQ, collated by the World Economic Forum, we evaluate the influence of nine key isomorphic pressures on the ARQ in 26 Asia‐Pacific countries. The results suggest that six of these (the efficacy of the corporate board, securities exchange regulations, reliance on professional management, protection of minority interests, adoption of international financial reporting and prevalence of foreign ownership) have a highly significant influence on the perception of ARQ whereas adoption of international standards on auditing is only moderately significant. However, contrary to expectations, our findings do not support the argument that the efficiency of legal frameworks and political systems significantly influences the perceptions of auditing and reporting quality in the Asia‐Pacific region. These results should be of use to investors and the accounting profession in evaluating economic environments.

Social entrepreneurship and the institutional environment

This study examines the effects of a country's institutional environment on economic social entrepreneurship. The measures of a country's institutional environment include Porter's social progress index (SPI) and the World Economic Forum's global competitiveness index (GCI). The GCI measures the economic environmental munificence of a country which supports entrepreneurial ventures. I used the SPI to measure social munificence or social welfare of a country. The dependent variable is the number of Ashoka social entrepreneurs working to address the economic needs in a nation. The study includes 82 countries with Ashoka fellows. Of the 82 countries, 58 countries had Ashoka economic social entrepreneur fellows. The control variables include the log of GNI per capita and the log of population. I hypothesised that the less the SPI, the greater the number of social entrepreneurs focusing on the economy. That is, the less the social munificence, the greater the need for social entrepreneurs.

Improvement of the Institutional Environment as the Conditions of the Effectiveness of the State Financial Policy of Social Development in Ukraine

The article reveals the essence of the institutional environment and generalizes the scientific approaches to its definition. It is shown that the dynamic development of all spheres of society’s life needs to take into account the state of the country institutional environment in the process of the state financial policy implementation. The social, economic and political institutions are outlined. Significant components of the institutional environment that form its segments in the context of influence on social processes in society are singled out. It is shown that in Ukraine, along with the instability of economic dynamics, high debt burden, increased openness of the economy and deepening of the processes of integration into the system of international economic relations, there is an aggravation of social problems and the probability of occurrence of social risks increases, which manifests itself in the existence of a number of social imbalances. The institutional aspects of the important components of the state financial policy ‒ the fiscal policy, which in the conditions of instability has more effective influence on social processes, in particular, in the aspect of neutralization of social instability risks, are determined. It was shown that in the conditions of a weak institutional environment there is a risk of increasing inefficient budget expenditures in connection with the implementation of the social function of the state, in particular, expenditures of social orientation. Moreover, under these conditions, increasing levels of funding will lead to increasingly inefficient spending, caused by the existence of institutional dysfunctions. Among the major dysfunctions of the institutional environment in the aspect of their influence on the formation and implementation of the state financial policy of social development of the society attention was drawn to the existence of a debt trap in Ukraine and the trap of «the vicious circle of poverty». It is shown that reforms are being carried out in the country and measures are taken to improve the institutional environment, including in order to eliminate these traps. However, some measures are still non-systematic, consistent, situational in nature. It is substantiated that the state financial policy can influence the improvement of the formal component of the institutional environment of the society, which will increase its effectiveness, provided that certain coordination measures are implemented. At the same time, the need to improve the quality of the institutional environment focuses on its informal component, which today remains virtually oblivious. The methods of the institutional environment improving are generalized and the possibilities of realization of some of them in Ukraine are outlined. It is concluded that the improvement of the institutional environment for the implementation of the social function of the state in Ukraine should be carried out mainly through modernization, rather than institutional design, since under the conditions of slow economic dynamics such an approach will not lead to a significant increase in transaction costs.

Strategic motives, institutional environments, and firm’s FDI ownership

Purpose The study conceptualizes how firms’ strategic motives interact with the heterogeneity of host country institutional environments in determining the subsidiary ownership. The author hypothesizes and tests two interaction effects. The study found that firms with market-seeking motives are more affected by the heterogeneity of host country institutional environments, while firms with resource-seeking motives are less affected by the heterogeneity. The empirical findings are based on a sample of overseas subsidiaries reported in the annual reports of listed firms in China. Design/methodology/approach In this study, an empirical investigation was conducted using a sample of subsidiaries of listed firms in China. The data were compiled from 2012 annual reports of listed firms in China. The sample consists of 2,270 subsidiaries of these firms. Findings The study conceptualizes that firms with market-seeking motives and resource-seeking motives are influenced differently by the heterogeneity of host country institutional environments in determining their subsidiary ownership. We hypothesize two interaction effects. Firms with market-seeking motives are more subject to the heterogeneity of host country institutional environments in determining their FDI ownership level. In contrast, firms with resource-seeking motives are less subject to this heterogeneity. The findings largely supported the study’s hypotheses. Originality/value This study fills an important gap in the literature by incorporating the interaction between strategic motives and host country environments in the analysis of subsidiary ownership. The findings of the study suggest that firms with a market-seeking motive are more particular about the host country institutional environments. They will acquire a high level of ownership in host countries with attractive institutional environments. In contrast, firms with resource-seeking motive are less concerned with the host country institutional environments. Their decision on subsidiary ownership is less affected by the variance in host country institutional environments. This study adds to the stream of studies that have examined outward investments of firms from emerging economies, particularly the outward expansion of Chinese firms with different strategic motives.

Home country institutions, social value orientation, and the internationalization of ventures

We examined how home country formal institutions and the venture’s value orientation influenced the venture’s likelihood of internationalization based on a data set that was adapted from the Global Entrepreneurship Monitor (GEM) data in the year 2009, covering 7668 individual ventures in 25 countries. Better-developed home country formal institutions are found to have a supportive impact on the venture’s likelihood of internationalization. The supportive impact is also found to be weaker for socially oriented ventures than for profit-oriented ventures. The venture’s social value orientation negatively moderates the home country formal institutions–likelihood of internationalization relationship. The negative moderating effects can be explained as follows: Socially oriented ventures in the better-developed home country institutional environment are less likely to develop coping skills against uncertain and risky institutional environments, which are common in their host countries. Besides the theoretical contributions, this paper also highlights the implications for both business researchers and policy makers.

Workforce reduction across borders: The role of legal frameworks

This article reports on a case study of a Swedish multinational corporation where human resource practices were successfully transferred to its foreign subsidiaries in the context of extensively regulated host country institutional environments, offering an opportunity to provide a deeper understanding of the role of legal frameworks when transferring human resource practices within multinational corporations. The findings indicate that the transfer of human resource practices was not simply a matter of passively adapting to host country legal frameworks. A more balanced conceptualisation of the role of legal frameworks in human resource practice transfer is needed, including a view of law as negotiable and open to interpretation and that host country institutional environments can also contribute to and support multinational corporations to transfer human resource practices across foreign subsidiaries.

Who Invests in Tax Havens? Liability of Privateness and International Tax Avoidance

In this study, we draw upon resource dependence theory to investigate how international tax avoidance behavior of emerging market firms is driven by their home country institutional environments. T...

The dual effects of home country institutions on the internationalization of private firms in emerging markets

PurposeThis study aims to examine the dual effects of home country institutional forces (i.e. institutional support and institutional constraints) on the internationalization of private firms in emerging markets. By doing so, this study aims to examine the applicability of the two seemingly paradoxical views (i.e. the governmental promotion view and the institutional escapism view) in explaining private firms’ internationalization. Further, this study investigates how the effect of the home country institutional environment on firms’ internationalization is contingent upon firm characteristics.Design/methodology/approachA sample of Chinese private firms is used to examine the effect of home country institutions on internationalization.FindingsEmpirical findings suggest that both institutional support and institutional constraints promote the internationalization of private firms in emerging markets. Moreover, it is found that firm resources strengthen the effect of government support on internationalization. It is also found that firms’ business ties strengthen the effect of institutional constraint on internationalization, whereas firms’ political ties weaken the effect of institutional constraints on internationalization.Originality/valueBy adopting an integrated and comprehensive investigation of the dual effects of home country institutional environment in emerging markets on internationalization, this study provides evidence to the applicability of the two competing views (i.e. the governmental promotion view and the institutional escapism view) in relation to home country institutional effects on internationalization. In addition, this study examines how institutional effects vary across firms with different resources and social ties, thus extends understandings of the boundary conditions of the two institutional effects.

Institutional Complementarity and Substitution as an Internationalization Strategy: The Emergence of an African Multinational Giant

Research SummaryWe examine the internationalization decisions made by one of Africa's most successful companies, South African Breweries, as it underwent a period of aggressive expansion. We see processes of both institutional complementarity and substitution at different phases and with different motives. At first it sought countries that played to its strength, namely the knowledge of doing business in environments of institutional uncertainty, but later it pursued an institutional diversification strategy whereby it attempted to minimize its institutional risk exposure. As it became larger, its aspirations increased too, and its over‐exposure to emerging market institutional risk saw it engage in institutional substitution into advanced countries. Through this phased international process, it was able to develop its internal assets, and this enabled the moves into developed markets.Managerial summaryWe demonstrate that firms can exploit their knowledge of ‘weak’ institutional settings and turn it into a source of advantage as they internationalize into locations with similar institutional ‘weaknesses.’ Using the case of one of Africa's most successful multinational enterprises, we illustrate the value gained from initially capitalizing upon institutional complementarity (utilizing the comparative advantage linked to institutional know‐how) by exploiting the experience of the home country's environment into similar settings. Over time and through learning‐by‐doing, pressure arose to diversify the risk linked with over‐exposure to institutional uncertainty and country risk, and this was associated with the process of institutional substitution into more advanced countries. We see emerging multinational learning and building its capabilities by leveraging its understanding of its home country institutional environment. Copyright © 2016 John Wiley & Sons, Ltd.

Subnational institutions, political capital, and the internationalization of entrepreneurial firms in emerging economies

This study advances the institution-based view of strategy by integrating it with firm-specific capability considerations. In particular, we investigate the integrative influence of subnational-level home country institutional environments and firm-level political capital, as an important way to seek resources, on emerging economy entrepreneurial firms’ internationalization. With data from Chinese entrepreneurial firms, we find that the development of subnational institutional environments in the home country is related to firms’ degree of internationalization. Furthermore, while political capital with low-level governments enhances the effect of subnational institutions on internationalization, political capital with high levels of government has no such moderation effect. Theoretical and empirical contributions and implications are discussed.

International Franchise Expansion: The Role of Institutions and Transaction Costs

Abstract In this study, we examine how a country's institutional environment affects the international expansion activities of U.S. franchise companies. We draw on institutional and transaction cost theories to develop a model and a set of hypotheses regarding the effect of political, regulatory and infrastructural institutions, as well as economic instability, on international franchise expansion. Using a sample of U.S. franchise firms and data from a combination of secondary sources, we test these hypotheses by estimating a panel regression model. Our results demonstrate for the first time that, in addition to favorable political governance, a country's business climate, including entry regulations, taxes, and communications infrastructure, is an important predictor of foreign franchise firms' expansion into that country. Implications for practice and future research also are discussed.