Mind the gap: impact of formal institutional distance and human rights differences between the host and home countries on emerging market multinationals' choice of ownership strategy

Recent decades have witnessed a rapid expansion of emerging-market multinational enterprises’ (EMNEs). These newly internationalising firms are faced with challenges as they go abroad. One of the sources of this challenge is the gap between codified formal institutions and the extent to which they are upheld in practice. Drawing on recent critiques, we explore the links between EMNEs’ ownership strategy, the difference in the host-home countries in terms of the formal institutions and mediating role of human rights. Our analysis draws on the data for EMNEs from five emerging markets, Brazil, Russia, India, China and South Africa, between 1998–2011. The results suggest a partial mediation effect of human rights difference on the formal institutional distance and EMNEs’ ownership stakes, namely, when EMNEs acquired targets in the developed countries. Thus, our study contributes to the literature by evidencing the effect of formal institutions being transmitted via human rights differences between home and host countries.