Navigating the Distance: How Institutional Differences Shape Multinational Enterprises’ Investment Strategies

Abstract

This study investigates the impact of formal and informal institutional differences on the investment decisions of international joint venture (JV) sponsors of multinational enterprises (MNEs) engaged in liquefied natural gas (LNG) projects. Although this study is anchored in institutional theory, an economic geography approach is supported to understand the direct effects of distance and the interaction effects of various contextual factors. Multiple regression analysis reveals that the institutional and cultural distance between the JV sponsor and host country significantly affects the JV sponsor’s investment decisions. Conversely, the geographic, institutional, and cultural distances between JV sponsors have no statistically significant impact on investment decisions. These findings highlight the important role of collaboration between the host and JV sponsors, suggesting that collaborative synergies among JV sponsors may mitigate the effect of distance. Our findings make a theoretical contribution by filling a research gap on how the distance paradigm shapes MNEs’ investment strategy decisions and provide valuable insights for international business practitioners. Meanwhile, the difficulty of eliminating the subjectivity arising from measuring institutional differences limits this study. Therefore, future research should increase the reliability of results by triangulating from multiple data sources.