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How do sub-national institutional constraints impact foreign firm performance?

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  • Li, Xiaoying
  • Sun, Laixiang

Abstract

This paper examines the impact of sub-national institutions on the performance of foreign firms in China. Building on institutional theory, we envisage that the negative effect of sub-national institutional constraints is moderated by firm size and age, entry mode, and market orientation. Our hypotheses are tested on a large-firm-level dataset of about 29,000 foreign firms in 120 cities in China within the period of 1999–2005. We find that firm size and age both have a diminishing positive impact on foreign firm performance; moreover, there is a U-shaped relationship between firm age and foreign firm performance in cities with higher level institutional constraints. We also find that joint ventures help mitigate the negative impact of sub-national institutional constraints on foreign firm performance when the level of institutional constraints is higher.

Suggested Citation

  • Li, Xiaoying & Sun, Laixiang, 2017. "How do sub-national institutional constraints impact foreign firm performance?," International Business Review, Elsevier, vol. 26(3), pages 555-565.
    • Handle: RePEc:eee:iburev:v:26:y:2017:i:3:p:555-565
    DOI: 10.1016/j.ibusrev.2016.11.004
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