Legal distance moderation in the inter-partner technology distance on cross-country equity investments: A multilevel analysis of the information & communication technology sector

The ICT (information & communication technology) sector has increased inter-firm equity investment across countries, and scholars have explicated the role of technological distance or institutional distance to explain the equity size. This study extends the framework to integrate the legal distance (institutional) as a moderator between the technological distance (orientation) and the equity size in cross country investment decisions. Empirically, little is known about whether the legal distance between the home and host countries of high technology firm influences its equity decisions. This study addresses this question using equity deals in the ICT sector during a critical period (2007–2009). Multilevel analysis is based on 51,198 inter-firm equity deals, 120 home countries, 154 host countries, 19,712 equity investing firms and 32,987 equity target firms. This robust analysis offers sever insights. First, the inter-firm technological proximity predicts higher equity than the inter-firm technological distance. In other words, the technology strategy firm invests equity more than a non-technology firm. Second, the inter-legal distance (home-host) between partners predicts lower equity than the inter-legal proximities between the investor and target. Third, the inter-legal distance moderates the technological orientation, predicting that the effect of technological distance decreases the coefficient by 49%, and the effect of the legal distance coefficient increases by 49%. This study contributes to the international business equity investment decision in the high technology sectors to manage uncertainty. The study contributes to institutional contingencies in this field by integrating them with technological contingencies. In addition, it rests on a robust methodology (multilevel) for the academic audience and managerial implications for the business audience.