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Location Decisions and the Liability of Foreignness: Spillover Effects Between Factor Market and Capital Market Strategies

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  • Lindorfer, Robert
  • d'Arcy, Anne
  • Puck, Jonas

Abstract

In this paper we build on the liability of foreignness concept and the institutional perspective to show how an equity listing and subsidiary formations in the host market are interlinked. Using a matched sample of foreign equity-listed and domestic equity-listed European firms on EU-regulated capital markets, we find that (1) the number of prior host-market subsidiary formations increases the probability of a host-market equity listing, and (2) a prior host-market equity listing increases the number of host-market subsidiary formations. Hence, we identify spillover effects between factor market and capital market strategies. However, the extent of these spillover effects depends on institutional characteristics of the host market, where companies on smaller markets gain higher spillover effects. We contribute to international management and finance research by providing factor market strategies as a valuable source to overcome capital market liabilities of foreignness and capital market strategies as a valuable source to overcome factor market liabilities of foreignness.

Suggested Citation

  • Lindorfer, Robert & d'Arcy, Anne & Puck, Jonas, 2016. "Location Decisions and the Liability of Foreignness: Spillover Effects Between Factor Market and Capital Market Strategies," Journal of International Management, Elsevier, vol. 22(3), pages 222-233.
    • Handle: RePEc:eee:intman:v:22:y:2016:i:3:p:222-233
    DOI: 10.1016/j.intman.2016.04.002
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    6. Andrei Panibratov & Natalia Ribberink & Anna Veselova & Konstantin Nefedov, 2018. "Entry Modes And Liability Of Foreignness Effects: Evidence From Russian Firms On The German Market," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 9(1).
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