Legal family, cultural dimensions, and FDI
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 22 March 2019
Issue publication date: 31 July 2019
Abstract
Purpose
The purpose of this paper is to investigate the interaction between legal origin and cultural distance and its impact on foreign direct investment (FDI) flows into the OECD.
Design/methodology/approach
Ordinary least squares regression analysis is used to evaluate FDI flows into OECD countries between 2003 and 2012. Estimations use fixed effects and clustered standard errors.
Findings
FDI flows from civil to common law countries are greater than vice versa. Further, cultural distance impacts FDI flows depending on the legal origin of the source country. Specifically, more FDI flows from civil and common law countries, when the host country has a higher (lower) power distance (individualism) score. Civil law countries send more FDI into countries with higher masculinity, uncertainty avoidance and indulgence scores and with lower long-term orientation scores. The opposite is the case with common law source countries. The findings remain robust for various changes to the sample selection.
Research limitations/implications
The concepts of cultural distance and legal origin have been criticized. However, neither concept has been rejected; rather, both concepts persist as robust empirical research tools.
Practical implications
Scholars, managers and investors can gauge the impact of cultural distance on FDI flows based on the legal family of the source country. Further, policy makers might want to consider rebranding their countries in terms of cultural perceptions to show the attractiveness of specific cultural dimensions to foreign companies and investors.
Originality/value
To the best of the authors’ knowledge, this is the first paper that jointly investigates FDI, legal origin and national culture.
Keywords
Citation
Steigner, T., Riedy, M.K. and Bauman, A. (2019), "Legal family, cultural dimensions, and FDI", International Journal of Managerial Finance, Vol. 15 No. 3, pp. 285-314. https://doi.org/10.1108/IJMF-09-2017-0205
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited