The Effect Of Institutional Distance On Equity Level:the Moderating Effect Of SO And Internationalization Experience

With globalization of world economy escalating, more and more Chinese enterprises cross the border and enter into foreign market. Especially since the One Belt and One Road policy has been promoted by the country, there will be a huge opportunity for the Chinese enterprises’FDI to grow. Such being the case, it is gaining more and more attention to how the Chinese enterprises should enter into the foreign market. In the academy world, Entry Mode is a hot topic that has multi-level factors ranging from the country-level, industry-level to the firm-level, such as the cultural distance between the home country to the host country, the industry growth rate in the host country, the internationalization experience etc.. While all those factors of different levels influencing the entry mode of Mulnational Enterprises (MNEs), high-level complexity from internal and external are facing the MNEs. Consequently, it is necessary for the scholars to start from a proper perspective to analyse the machnism of the entry mode.Currently, scholars in the perspective of institutional theory have gained inconsistent conclusions, which are resulted from multiple reasons. First, it is partially because the differences between countries have not been segmented enough when it is analysed for the its influence on entry mode choice; second, there are still some unrecognized moderators within the mechanism between country differences and entry mode choice; last but not least, most of the studies have been developed among the developed economies, which is not necessarily constant when extended into developing economies by scholors. Given all these reasons, this paper discuss the influence of formal institutional distance as well as informal institutional distance on entry mode, respectively, based on which, three moderators have been considered including the direction of the formal institutional distance, the state ownership of the Chinese MNEs, and the host-specific internationalizaiton experience of the MNEs. With such systematic analysis, this paper could serve to provide explanations for the inconsitences among current studies as well as to extend the entry mode studies into the conditions of China.The object of this study is the Chinese MNEs that conducted FDI activities during the year of2000to2012. Totally a data sample of1050FDI projects by323China A-share listed companies has been analysed by the usage of the11.0version Stata, which has brought up the conclusions as follows:(1) The formal institutional distance positively influence the MNEs’investment ownership level.(2) The positive influence of formal institutional distance on the MNEs’investment ownership level is negatively moderated by the formal institutional distance direction, that is, when the MNEs enter into countires with less developed institution, the the positive influence of formal institutional distance on the MNEs’ investment ownership level gets weaker.(3) The positive influence of formal institutional distance on the MNEs’ investment ownership level is positively moderated by the state ownership, that is, for the MNEs with higher level of state ownerhip, the positive influence of formal institutional distance on the MNEs’ investment ownership level gets stronger.(4) The negative influence of informal institutional distance on the MNEs’investment ownership level is positively moderated by host-specific internationalization experience, that is, as the MNEs get more host-specific internationalization experience, the negative influence of informal institutional distance on the MNEs’ investment ownership level gets weaker.