TY - JOUR
T1 - The effect of subnational legal effectiveness and social trust on foreign firm performance
T2 - from subnational analysis in emerging economies
AU - Jia, Yu
AU - Ye, Yongqing
AU - Ma, Zhuang
AU - Wang, Tao
N1 - Funding Information:
This work was supported by the National Natural Science Foundation of China (72102170, 72172107), and Independent Research Project of Wuhan University (2021XWZY009).
Publisher Copyright:
© 2022, Emerald Publishing Limited.
PY - 2024/5/31
Y1 - 2024/5/31
N2 - Purpose: This study aims to verify the respective and interactive effects of subnational formal and informal institutions (i.e. legal effectiveness and social trust) on foreign firm performance, and further identify the contingent factor (i.e. institutional experience) that moderates these relationships. Design/methodology/approach: Drawing on the institutional-based view, this study develops several hypotheses that are tested using a comprehensive dataset from four main data sources. The authors’ unit of analysis is foreign firms operating in China. The authors ran ordinary least squares (OLS) regression model to investigate the effects. A series of robustness tests and endogeneity tests were performed. Findings: The results show that both legal effectiveness and social trust at subnational level positively affect foreign firm performance respectively. Legal effectiveness and social trust at subnational level have complementary effect in promoting the performance of foreign firms. Foreign firm's institutional experience in target region of emerging economies host country strengthens the positive impact of subnational legal effectiveness on performance, but weakens the positive impact of subnational social trust on performance. Practical implications: It is important to fully understand the impact of heterogeneous institutional environments of subnational regions in emerging economies on foreign firm performance, which would help foreign firm make a more suitable secondary choice decision of investment destinations at the subnational regional level. Originality/value: First, drawing on institutional-based view, the authors incorporate the subnational formal and informal institutional factors to investigate their impacts on foreign firm performance by switching the attention from national level to subnational level in emerging economy host countries. Second, this research furthers existing studies by bridging a missing link between both subnational formal and informal institutional environments and foreign firms' outcomes. Third, the authors prove that the model of subnational formal and informal institutions in influencing foreign firms' performance is contingent on their institutional experience in target subnational region of emerging economy host country.
AB - Purpose: This study aims to verify the respective and interactive effects of subnational formal and informal institutions (i.e. legal effectiveness and social trust) on foreign firm performance, and further identify the contingent factor (i.e. institutional experience) that moderates these relationships. Design/methodology/approach: Drawing on the institutional-based view, this study develops several hypotheses that are tested using a comprehensive dataset from four main data sources. The authors’ unit of analysis is foreign firms operating in China. The authors ran ordinary least squares (OLS) regression model to investigate the effects. A series of robustness tests and endogeneity tests were performed. Findings: The results show that both legal effectiveness and social trust at subnational level positively affect foreign firm performance respectively. Legal effectiveness and social trust at subnational level have complementary effect in promoting the performance of foreign firms. Foreign firm's institutional experience in target region of emerging economies host country strengthens the positive impact of subnational legal effectiveness on performance, but weakens the positive impact of subnational social trust on performance. Practical implications: It is important to fully understand the impact of heterogeneous institutional environments of subnational regions in emerging economies on foreign firm performance, which would help foreign firm make a more suitable secondary choice decision of investment destinations at the subnational regional level. Originality/value: First, drawing on institutional-based view, the authors incorporate the subnational formal and informal institutional factors to investigate their impacts on foreign firm performance by switching the attention from national level to subnational level in emerging economy host countries. Second, this research furthers existing studies by bridging a missing link between both subnational formal and informal institutional environments and foreign firms' outcomes. Third, the authors prove that the model of subnational formal and informal institutions in influencing foreign firms' performance is contingent on their institutional experience in target subnational region of emerging economy host country.
KW - Emerging economies
KW - Foreign firm performance
KW - Formal and informal institutions
KW - Institutional experience
KW - Subnational regions
UR - http://www.scopus.com/inward/record.url?scp=85139652675&partnerID=8YFLogxK
U2 - 10.1108/IJOEM-03-2021-0452
DO - 10.1108/IJOEM-03-2021-0452
M3 - Article
AN - SCOPUS:85139652675
VL - 19
SP - 1669
EP - 1694
JO - International Journal of Emerging Markets
JF - International Journal of Emerging Markets
SN - 1746-8809
IS - 6
ER -