Societal trust, formal institutions, and foreign subsidiary staffing

This study examines the interactive effects of host-country societal trust and formal institutions on foreign subsidiary staffing strategies. Based on the conceptualization of institutions in new institutional economics, we demonstrate that high societal trust and strong formal institutions that support market-based exchange jointly reduce the incidence of expatriate staffing in foreign subsidiaries. We identify two contingency factors – subsidiary interdependence and host-country experience – that affect this relationship. Our finding suggests that the level of interdependence among subsidiaries within the MNE network and the host-country experience of the subsidiaries negatively moderate the interactive effect of formal and informal institutions on expatriate staffing. We test our hypotheses based on longitudinal data of 6675 foreign subsidiaries of 435 Korean MNEs in 42 countries between 1990 and 2014.