Abstract

Mode of entry studies the international behavior of multinational firms and the factors that impact their international behavior. This study examines the impact the macro level institutions of a host country on the entry strategy of a foreign multinational enterprise (MNE). The framework developed in the study focuses on two sets of institutions, formal institutions which comprise the political and judicial rules and informal institutions which are comprised of cultural and business practices that are not formally codified. The results of the study provide further empirical evidence that the institutional environment influences MNE behavior. In particular this study found that, for a constant level of informality, the increased degree of formality of an institutional environment encourages multinational firms to choose acquisitions over joint ventures. Meanwhile the increased degree of formality and informality makes MNEs more likely to choose joint ventures over acquisitions and strategic alliances as modes of entry.