The interplay between home and host country institutions in an emerging market context: Private equity in Latin America |
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| Institution: | 1. Universidad Adolfo Ibáñez, Escuela de Negocios, Av Diagonal Las Torres 2640, Peñalolén, Santiago, 7941169, Chile;2. Washington and Lee University, Williams School of Commerce, Economics and Politics, 204W. Washington St, Lexington, VA 24450, United States;3. University of Colorado-Boulder, Leeds School of Business, 419 UCB, Boulder, CO 80309, United States;1. Department of Strategic Management and Globalization, Copenhagen Business School, Copenhagen, Denmark;2. Faculty of Business Administration, Memorial University of Newfoundland, St. John''s, NL, Canada;3. Sauder School of Business, The University of British Columbia, Vancouver, BC, Canada;4. Department of International Trade, Duksung Women’s University, Seoul, Republic of Korea;1. Nottingham University Business School China, University of Nottingham Ningbo China, 199 Taikang East Road, Ningbo, Zhejiang, 315100, PR China;2. Kelley School of Business, Indiana University, 1309 East Tenth Street, Bloomington, Indiana 47405-1701, USA;3. Smith School of Business, Queen’s University, Kingston, Ontario, Canada;4. Zicklin School of Business, CUNY – Baruch, One Bernard Baruch Way, New York, NY 10010, USA;1. Brunel Business School, Brunel University London, Uxbridge, UK;2. Adam Smith Business School, University of Glasgow, Glasgow, UK;3. Leeds University Business School, University of Leeds, Leeds, UK;1. Gordon Institute of Business Science, University of Pretoria, 25 Fricker Road, Illovo, Johannesburg, 2146, South Africa;2. University of Sussex, Jubilee Building, Falmer, Brighton, BN1 9RH, UK;3. Graduate School of Business, University of Cape Town, 8 Portswood Road, V&A Waterfront, Cape Town, 8002, South Africa;1. University Of Sussex, Jubilee Building, Brighton BN1 9SL, United Kingdom;2. School of Business and Law, University of Agder, Kristiansand, Norway;3. Research Institute of Industrial Economics, Stockholm and Knut Wicksell Centre for Financial Studies, Lund University, Sweden;1. Leeds University Business School, University of Leeds, Woodhouse Lane, Leeds, LS2 9JT, United Kingdom;2. King’s Business School, 30 Aldwych, WC2B 4BG, London, United Kingdom |
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| Abstract: | This study examines how the interplay between home and host country regulatory institutions affects the investment strategy of private equity (PE) firms in an emerging market context. To answer this question, we consider three different mechanisms: (1) the institutional hazard avoidance effect, (2) the institutional escapism effect, and (3) the dysfunctional institutions effect. Contrary to conventional wisdom, we argue that regulatory institutional differences between home and host countries can sometimes have a positive rather than a negative effect on investment likelihood. Our findings show that when a host emerging market has a strong regulatory institutional system relative to other emerging markets, it is more likely that this country will attract PE investments from firms based in home countries with very strong and very weak institutional systems. The empirical analyses, based on a polynomial specification and a dataset covering more than 300 PE firms that made close to 1500 investment transactions in Latin America during 1996–2011, are consistent with our main theoretical arguments. |
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| Keywords: | Home country institutions Host country institutions Private equity Emerging markets Latin America |
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