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Institutional distance and the performance of foreign subsidiaries in Brazilian host market

Institutional distance and the performance of foreign subsidiaries in Brazilian host market
Institutional distance and the performance of foreign subsidiaries in Brazilian host market

Purpose: the purpose of this paper is to contribute to the ongoing and unresolved debate in the international business (IB) literature with respect to what drives or impedes multinational company (MNC) success in emerging markets, focusing specifically on the impact of institutional conditions on subsidiary performance. 

Design/methodology/approach: in the understanding that greater attention to different institutional settings and their diversity has much to offer theory-building in the IB area, this panel study examines the influence of institutional distance on the return on assets (ROA) of 399 foreign subsidiaries in a previously understudied host market, that of Brazil during the period from 2008 to 2011. Regression analysis was carried out on panel data using weighted least squares as estimator. 

Findings: similar to research conducted in other national contexts, results revealed significant correlation between institutional distance and firm performance measured by ROA. Unlike previous research, however, these correlations were positive: the greater the institutional distance, the better the performance. Both normative distance and regulatory distance positively influenced ROA, raising questions with regard to the concept of institutional distance, its operationalization and influence.

Originality/value: the paper is of value in showing the institutional distance and the performance of foreign subsidiaries with a positive relationship in an emerging market (Brazil) using a panel perspective rather than the more usual sectional perspective.

Brazil, Foreign-owned subsidiaries, Institutional distance, Subsidiary performance
1746-8809
279-295
Marini Thomé, Karim
202b0734-3c7e-4f44-90d4-0bfab6afca3b
Joslin Medeiros, Janann
946950b6-4f4a-469a-ad36-44ebed7068fb
Hearn, Bruce A.
45dccea3-9631-4e5e-914c-385896674dc2
Marini Thomé, Karim
202b0734-3c7e-4f44-90d4-0bfab6afca3b
Joslin Medeiros, Janann
946950b6-4f4a-469a-ad36-44ebed7068fb
Hearn, Bruce A.
45dccea3-9631-4e5e-914c-385896674dc2

Marini Thomé, Karim, Joslin Medeiros, Janann and Hearn, Bruce A. (2017) Institutional distance and the performance of foreign subsidiaries in Brazilian host market. International Journal of Emerging Markets, 12 (2), 279-295. (doi:10.1108/IJoEM-02-2015-0031).

Record type: Article

Abstract

Purpose: the purpose of this paper is to contribute to the ongoing and unresolved debate in the international business (IB) literature with respect to what drives or impedes multinational company (MNC) success in emerging markets, focusing specifically on the impact of institutional conditions on subsidiary performance. 

Design/methodology/approach: in the understanding that greater attention to different institutional settings and their diversity has much to offer theory-building in the IB area, this panel study examines the influence of institutional distance on the return on assets (ROA) of 399 foreign subsidiaries in a previously understudied host market, that of Brazil during the period from 2008 to 2011. Regression analysis was carried out on panel data using weighted least squares as estimator. 

Findings: similar to research conducted in other national contexts, results revealed significant correlation between institutional distance and firm performance measured by ROA. Unlike previous research, however, these correlations were positive: the greater the institutional distance, the better the performance. Both normative distance and regulatory distance positively influenced ROA, raising questions with regard to the concept of institutional distance, its operationalization and influence.

Originality/value: the paper is of value in showing the institutional distance and the performance of foreign subsidiaries with a positive relationship in an emerging market (Brazil) using a panel perspective rather than the more usual sectional perspective.

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Accepted/In Press date: 16 September 2016
e-pub ahead of print date: 5 May 2017
Published date: 2017
Keywords: Brazil, Foreign-owned subsidiaries, Institutional distance, Subsidiary performance

Identifiers

Local EPrints ID: 423340
URI: http://eprints.soton.ac.uk/id/eprint/423340
ISSN: 1746-8809
PURE UUID: 1c64e4d2-d90e-4fd4-86b5-df9e67f31134
ORCID for Bruce A. Hearn: ORCID iD orcid.org/0000-0001-9767-0198

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Date deposited: 20 Sep 2018 16:30
Last modified: 17 Dec 2019 01:23

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Contributors

Author: Karim Marini Thomé
Author: Janann Joslin Medeiros
Author: Bruce A. Hearn ORCID iD

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