The Effect of Change in Host Country’s Institutional Environment on the Relationship between Top Manager Staffing and Subsidiary Performance

Abstract

While prior research on staffing in multinational subsidiaries has reported that staffing decisions have a substantial influence on the performance of the subsidiaries, empirical findings are mixed. Focusing on the change in a host country’s institutional environment, this study investigates how the environmental change in China as a host country affects the relationship between subsidiary staffing decisions and performance. Evidence from 355 subsidiaries of the Japanese companies in pre- and post-WTO China shows that the localization of top managers has a positive influence on subsidiary performance in pre-WTO China, but in contrast, it has a negative influence in post-WTO China. Those results suggest that the influence of top manager staffing on subsidiary performance is dependent on the host country’s institutional environment and that the relationship between them can change over time along with the change in the institutional environment within a country.