Home country institutional effects on the multinationality-performance relationship: a comparison between emerging and developed market multinationals

Abstract

The question of how institutional aspects can shape multinational enterprises' (MNEs) operations abroad and overall performance has received increasing attention in the international business literature. We address this issue by meta-analyzing the effects of home country formal institutions on MNEs' multinationality-performance (M-P) relationship using data from 170 independent studies covering over 54,600 firms from 26 countries. By focusing on specific policies such as capital market development, labor market flexibility, regulatory quality, control of corruption, and trade openness, we provide evidence that home country institutions can significantly influence MNEs' M-P relationship. From a multilevel approach, our findings indicate that a stronger institutional environment not always positively affects the M-P relationship. For developed market firms, the M-P relationship gets stronger with an improved institutional environment. However, in emerging markets, we find that the M-P relationship is actually weaker in cases of higher levels of home country labor flexibility and control of corruption. We discuss the implication of these findings showing that home country institutions have a significant and contrasting role in shaping MNEs' capacity to increase performance from their multinational investments. (C) 2016 Elsevier Inc. All rights reserved.