When does high institutional quality explain the presence of multinational enterprises in a foreign country? Experiential and vicarious learning as boundary conditions

Abstract

Institutional economics theory predicts that multinational enterprises operate in foreign countries with high institutional quality, which is known as the institutional profile effect. Nevertheless, the predictions of this theory seem to diverge from the international presence of certain multinational enterprises, raising questions about the broader applicability of the institutional profile effect. We posit that the phenomenon of learning by multinational enterprises offers an explanation for the occasional ineffectiveness of the institutional profile effect in specific contexts. Thus, we seek to answer the following research question: What types of learning reduce the probability of multinational enterprises operating in countries with high institutional quality? To address this question, we investigate the role of experiential and vicarious learning as boundary conditions for the institutional profile effect and compare their respective effects. Through our empirical analysis of a sample comprising 60 telecommunications multinational enterprises, 39 home countries and 145 host countries, we find that both experiential and vicarious learning have a negative moderating effect on the institutional profile effect. Furthermore, our findings indicate the existence of a cumulative effect resulting from the combination of different types of learning.