Formal Institutional Distance and Innovation from OFDI: Evidence from China

Recent years have seen Outward Foreign Direct Investment (OFDI) become a dominant resource for firms from emerging markets to enhance their innovation capability and achieve sustainable development. However, affected by the COVID-19 epidemic anti-globalization, multinational enterprises (MNEs) developing countries, especially OFDI whose main purpose is knowledge seeking, suffered. In face of investment constraints, improving efficiency an urgent issue MNEs in countries. The formal institutional distance (FID) between home host countries has challenged make adjustments according business environments which largely shape benefits OFDIs. To investigate such important, but under-studied, issue, this paper specifically examines impact FID on capabilities OFDIs secured Chinese firms. We disentangle effect R&D acquisition its moderating relationship performance theoretically. use Worldwide Governance Indicators (WGI) measure FID. Based sample that invested 28 2003 2017 via linear regression threshold methods, we found crucial negative significant (threshold effect) (i.e., when lower than threshold, then considerable effect, whereas would be less influential if surpassed threshold). Our findings highlight importance considering choosing destinations, firm invests with aim strengthening capability.