The Impact of Corruption and Institutional Restrictiveness on Entry Strategy: Evidence from Telecommunication Projects in Developing Countriese

Abstract

This research investigates effects of host country corruption and formal and informal institutional restrictiveness on the entry strategies of foreign multinational enterprises. Using data of over 400 telecommunication projects in developing markets between 2005 and 2011, we find that both formal and informal restrictiveness encourage the MNE to enter using an equity-mode with balanced ownership rather than a wholly owned subsidiary or a partnership with large differential in ownership. However, informal restrictiveness is a stronger force than the formal restrictiveness. We theorize and find a triple interaction effect which shows that this effect is stronger at lower levels than higher levels of informal restrictiveness.