Influence of host country institutions on subsidiary performance

Abstract

The importance of institutions and their influence on business activities have attracted the attention of both recent researchers and practitioners. In this study, we make further contribution to this field of research by capturing the effect of host country institutional characteristics on subsidiary performance. We use a sample of 804 German-owned subsidiaries operating in 52 developed and developing markets from 2011 to 2014 and examine the impact of regulatory institutions namely voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption in the host countries on their performance. Our empirical results indicate that political stability and control of corruption enhance subsidiary performance, while voice and accountability undermines it. These findings provide important insights and practical implications for managers and policymakers.