Institutional distance and the performance of foreign subsidiaries in Brazilian host market

Purpose The purpose of this paper is to contribute to the ongoing and unresolved debate in the international business (IB) literature with respect to what drives or impedes multinational company (MNC) success in emerging markets, focusing specifically on the impact of institutional conditions on subsidiary performance. Design/methodology/approach In the understanding that greater attention to different institutional settings and their diversity has much to offer theory-building in the IB area, this panel study examines the influence of institutional distance on the return on assets (ROA) of 399 foreign subsidiaries in a previously understudied host market, that of Brazil during the period from 2008 to 2011. Regression analysis was carried out on panel data using weighted least squares as estimator. Findings Similar to research conducted in other national contexts, results revealed significant correlation between institutional distance and firm performance measured by ROA. Unlike previous research, however, these correlations were positive: the greater the institutional distance, the better the performance. Both normative distance and regulatory distance positively influenced ROA, raising questions with regard to the concept of institutional distance, its operationalization and influence. Originality/value The paper is of value in showing the institutional distance and the performance of foreign subsidiaries with a positive relationship in an emerging market (Brazil) using a panel perspective rather than the more usual sectional perspective.