Psychic distance and outward foreign direct investment: the moderating effect of firm heterogeneity
ISSN: 0025-1747
Article publication date: 3 April 2020
Issue publication date: 4 September 2020
Abstract
Purpose
This study investigates the effect of psychic distance (PD) on outward foreign direct investment (OFDI) by multinational firms originating in emerging economies and the moderating effect of firm heterogeneity on this relationship.
Design/methodology/approach
An empirical analysis based on a negative binomial regression model is conducted using OFDI data from 2008 to 2017 on companies listed on the Shanghai and Shenzhen Stock Exchanges in China, an emerging economy.
Findings
The results suggest a U-shaped relationship between PD and OFDI by firms in emerging economies. Both executive foreign experience and state ownership negatively moderate the U-shaped relationship between PD and OFDI.
Practical implications
Emerging economies should encourage and guide multinational firms in engaging in OFDI and emphasize the advantages and disadvantages of PD for multinational firms. Additionally, non-sate-owned firms should recruit those who have a foreign education to provide support for OFDI by firms in emerging economies. Multinational firms should determine investment locations by consulting with executives with foreign experience to improve their ability to engage in OFDI.
Originality/value
This study combines macro and micro perspectives and integrates PD and firm heterogeneity into the same model with a sample of multinational firms originating in China. The findings support the existence of a PD paradox, which helps to enriching the theory on foreign direct investment.
Keywords
Acknowledgements
This research was supported by the China National Social Science Fund (18AGL004).
Citation
Chen, C., Zhan, Y., Yi, C., Li, X. and Wu, Y.J. (2020), "Psychic distance and outward foreign direct investment: the moderating effect of firm heterogeneity", Management Decision, Vol. 58 No. 7, pp. 1497-1515. https://doi.org/10.1108/MD-06-2019-0731
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited