Subnational social trust and the internationalization of emerging market firms

This study examines how informal institutions at the home country subnational level drive the foreign direct investment (FDI) of firms from emerging markets, where informal institutions play a salient role because of the underdevelopment of formal institutions. Integrating the institutional escape view and institutional support view, we argue that social trust, as a critical dimension of informal institutions, affects firms’ FDI decisions. Using a sample of publicly listed firms in China, our empirical analysis finds an inverted U-shaped relationship between subnational social trust and the likelihood of firms’ international expansions. Furthermore, this relationship is contingent on firms’ affiliations with business groups.