Cultural distance and the choice between wholly owned subsidiaries and joint ventures ¬リニ

a r t i c l e i n f o Keywords: Foreign direct investment Cultural distance Hofstede Schwartz GLOBE project Political risk Wholly owned subsidiary Joint venture Most empirical research on the choice between joint ventures and wholly owned subsidiaries analyzes the role of cultural distance in an isolated way. This study explores the potential influence of some factors related to the diversity among countries that are traditionally associated with cultural distance but not explicitly included in measurements of cultural distance. Different approaches to and measurements of cultural distance are used in this analysis. This study examines the potential existence of a moderating or intensifying effect of third variables on the role played by cultural distance. The results confirm the contingent role of host country risk on the choice between equity joint ventures and wholly owned subsidiaries. The cultural distance (CD) between the home and host countries of a foreign investment is a variable traditionally considered in the literature dealing with the choice between joint ventures (JVs) and wholly owned subsidiaries (WOSs), starting with Gatignon and Anderson (1988) and Kogut and Singh (1988). The choice between JVs and WOSs arises once the foreign firm decides to enter the host market through an equity foreign direct investment (FDI), that is, once the firm decides to grow abroad by investing equity and setting up a subsidiary in the target country. A second decision must then be made: whether to share the ownership of such an affiliate with other firms (equity joint venture) or to maintain full ownership (wholly owned subsidiary). The literature on international business analyzes the role that CD plays in this choice; nevertheless, the empirical evidence is inconclusive. The recent and exhaustive revision of the literature by Dow and Larimo (2009) presents contradictory results—see also Brouthers and The study here contributes new empirical evidence by analyzing the influence of some differences between the home and the target in the form of geographical distance and differences dealing with language and economic development. The study explores the potential existence of an interaction effect between CD and third variables, in particular, a variable related to the formal environment of the host country: its political risk (PR). Therefore, the study focuses on the role that the target's formal and informal environment plays on the choice between WOSs and JVs. The empirical analysis uses a database covering 302 investments made between 1989 and 2003 …