The Influence Of China’s Multinational Corporation Institutional Capacity On Location Choice

In the tide of global investment,multinational enterprises from emerging economies have gradually risen and become important players on the international stage.By the end of 2019,China’s OFDI has ranked second in the world in terms of flow and stock.It can be seen that the global influence of China’s international capital is increasing day by day,which has attracted wide attention from the academic circle.Studies have shown that China’s investment in developing countries accounts for more than 80%of its total investment.However,due to the low quality of business environment and unstable political regime in developing countries,multinational enterprises are usually exposed to huge political risks,leading to investment failure.Such a business environment in developing countries makes many multinational enterprises shrink back.However,in the face of high political risk,China does not show an attitude of avoiding,but gradually becomes a major investor in developing countries.At present,many studies have sought to explain the reasons for such investment behavior from the perspective of the home country of Chinese multinational enterprises,but there is a lack of research on the application of institutional capabilities accumulated at the enterprise level and their use conditions.Based on the existing research,this paper first constructs an analytical framework of"institutional capacity-host country formal institutions-location choice" from the perspective of institutional initiative,and explores the impact of institutional capacity of Chinese MNE on location choice.Secondly,considering the difference of redundant resources,market capacity and informal institutional environment between home country and host country,this paper studies the heterogeneity effect of institutional capacity on location choice of multinational enterprises.Based on the cross-sectional data of OFDI events of A-share listed companies in Shanghai and Shenzhen from 2013 to 2018,this paper uses STATA15.0 to conduct an empirical test on the influence of institutional capacity of multinational companies on location choice.Then,the samples are divided according to the degree of enterprise resource redundancy and the difference of enterprise market ability,and the group tests are conducted successively.Finally,we examine the moderating effect of informal institutional distance between home country and host country on the relationship between institutional capacity and location choice of MNEs.Then,according to the regression results,the research hypothesis is verified,the research conclusions are drawn and relevant suggestions are put forward.The empirical results show that:(1)institutional capacity can reduce the political risk of the host country by reforming and reshaping the formal system of the host country,so MNEs are willing to invest in countries with high political risk;(2)Redundant resources of enterprises are the conditions for the exertion of institutional capacity,and only enterprises with sufficient redundant resources can choose high political risk locations;(3)The willingness of MNEs with institutional capacity to invest in the host country with high political risk will be weakened by the informal institutional distance between the local and the home country.The results of this study provide useful enlightenment for Chinese multinational enterprises to deal with political risks in host countries and to make overseas location decisions.