Institutional Environment and Survival of Overseas Subsidiaries

We examine the effect of the institutional environment (IE) on the mortality of overseas subsidiaries in a country and test whether partnership strategies help to mitigate the hazards that come from regulatory, normative and cognitive constraints that institutions place on these subsidiaries. We use measures of political openness and social openness to characterize the regulative and normative dimensions of IE and use density of subsidiary population in a country to characterize the cognitive dimension. Empirical analysis of 12,000+ Japanese overseas investments from 1986-1997 in 25 countries shed light on the role of IE on subsidiary mortality and the interaction effect of partnering on the relationship between IE and mortality. Results provide support for long-held theoretical assertions and a promising approach to simultaneously investigate institutional effects on entry modes and the performance and survival of foreign direct investment.