The Impact of Institutional Distance on Innovation Performance in Chinese Reverse OFDI: Moderating Effects of Cultural Distance and Internationalization Experience

Abstract

In contrast to developed economies, emerging market economies exhibit varied directions of investment based on the host country’s economic level. They grapple with the dual impact of institutional disparities while investing in developed countries to acquire strategic assets. This paper investigates the crucial role of institutional distance in reverse outward foreign direct investment (OFDI) from China and its mechanism of influencing corporate innovation. We combine institutional theory with the resource-based view and utilize a zero-inflation negative binomial model to test samples of Chinese listed companies. Our results demonstrate that institutional distance positively impacts parent corporate innovation performance in reverse OFDI. Additionally, we examine the interaction between institutional distance and cultural distance, enriching relevant research context. By studying two types of moderating variables, we attempt to seek effective ways to actively cope with this influence. The dual definition of both an organization’s internationalization and the top management team’s (TMT’s) overseas background expands the theoretical margin of internationalization experience.

Keywords

• Cultural distance
• innovation performance
• institutional distance
• internationalization experience
• reverse OFDI
• TMT’s overseas background