This study aims to investigate the impact of host country’s institutional environment on the performance of Japanese subsidiaries. The first objective of the study is to investigate the impact of institutional quality on the performance of Japanese subsidiaries. Institutional quality is represented by the host country’s economic freedom. Economic freedom encompasses various aspects of a country’s business environment, including regulatory efficiency, property rights, fiscal health and market openness, which shape the operational landscape for foreign subsidiaries. This study also contributes to the existing literature by investigating the impact of regulatory institutional distance (economic freedom distance) on the performance of Japanese subsidiaries operating across different countries. In addition, this study investigates whether subsidiary experience in the host country moderates the relationship between the host country’s institutional quality and Japanese subsidiary performance.
This study uses the Toyo Keizai data set of Japanese subsidiaries operating across 24 countries from 2009 to 2023. In addition, it uses composite Economic Freedom Index scores published by the Heritage Foundation. Regression analysis has been used to investigate the proposed relationships. The proposed hypothesized relationships are tested using a consolidated sample and an emerging country sample.
The results of the study support that host country’s institutional quality (economic freedom score) has a positive impact on the performance of Japanese subsidiaries. The results also demonstrate that the impact of institutional quality and institutional distance is more profound in the emerging country sample. Moreover, subsidiary experience positively moderates the relationship between institutional quality and subsidiary performance.
This study contributes to the existing literature by examining the interplay between the host country’s institutional environment and subsidiary characteristics in influencing the performance of Japanese multinational enterprises. Using a consolidated sample and an emerging market sample, this study provides specific insights on how the institutional quality, institutional distance and subsidiary characteristics have varied impacts on the performance of Japanese subsidiaries.
