Interwoven institutional forces and Chinese firms’ outward foreign direct investment—political connections, institutional adaptability, and large foreign firms

Purpose Although prior literature had discussed the mechanisms underlying some institutional factors, such as political connections, institutional fragility and Chinese firms’ outward foreign direct investment (OFDI), there are another two institutional forces – institutional adaptability and large foreign firms – overlooked in the IB area. This study aims to conceptualize these two institutional forces and discusses the interaction between them and the political connection according to resource dependence theory. Design/methodology/approach The authors use logit and probit regression to test the theoretical arguments by examining Chinese prefecture-level cities’ institutional environment and Chinese-listed enterprises’ OFDI in these cities from 2000 to 2013. Findings This paper finds that the firms’ political connections had significantly positive correlations with Chinese firms’ international expansion intentions. However, institutional adaptability would weaken this relationship by changing the imbalance of dependence between firms and the government. But, large foreign firms would strengthen this relationship by influencing Chinese firm’s pros and cons related to political connections. Originality/value This study offers two new institutional forces to the emerging markets’ domestic institutional environment and extends the literature on the Chinese firms’ OFDI and resource dependence theory.