The research question focuses on understanding the moderating role of the top management team (TMT) in the relationship between institutional distance and MNE subsidiary performance. Institutional distance, defined as the difference between the institutional profiles of the home and host countries, significantly influences MNE subsidiary performance. While existing research largely shows a negative correlation between institutional distance and performance due to the liability of foreignness, this study investigates the micro-level influence of TMT characteristics on this relationship. The authors hypothesize that TMT managers' work experiences—home country, host country, and international—will differentially moderate the institutional distance-performance link. This research is important because understanding how individual managers within the TMT interpret and react to institutional differences is crucial for effective management of MNE subsidiaries and for developing optimal staffing strategies. The study uses a micro-level analysis of TMT characteristics, a novel approach that expands upon previous macro-level examinations of firm characteristics and their effect on performance in relation to institutional distance. The authors highlight the significance of considering the liability of foreignness not just at the firm level, but also at the individual manager level, with work experience playing a key role in a manager's ability to navigate different institutional contexts.

The literature review examines the established negative relationship between institutional distance and MNE subsidiary performance, focusing on the liability of foreignness. It discusses the mechanisms through which institutional distance impacts MNEs, including the transfer of strategic practices and the establishment of legitimacy in the host country. The review notes that while some studies suggest a positive impact due to institutional arbitrage, the dominant view remains negative. The study acknowledges previous research on boundary conditions, such as firm ownership and experience, but highlights the gap in understanding the role of individual managers, specifically the TMT, in managing institutional distance. The authors discuss the upper echelon perspective, which posits that organizational outcomes are influenced by managers' backgrounds and experiences, which in turn shape their cognitive maps and values. They explain how these cognitive maps influence strategic choices in the context of institutional distance, affecting legitimacy-building and strategic practice transfer. The literature review also examines the roles of expatriate managers, local managers, and the diversity of TMT international experience in managing institutional distance and facilitating knowledge transfer.

The study employed data on Chinese multinational enterprises (MNEs) from the Orbis database, a comprehensive source of company information. The data included information on 6119 Chinese MNE subsidiaries operating in 58 host economies. Selection criteria ensured that the ultimate owners were based in China and that subsidiaries had complete information on key variables. The data were then merged with World Governance Indicators (WGI) data from the World Bank to measure institutional distance, using Kogut and Singh's (1988) approach. The Index of Economic Freedom (IEF) data was also used for robustness checks. The dependent variable was return on assets (ROA). Independent variables included institutional distance (measured by WGI and IEF). Moderating variables included the number of expatriates on the TMT, the number of TMT members with host-country experience, and the diversity of the TMT's international work experience (categorized as strong and weak institution markets). Control variables encompassed firm-specific characteristics (firm age, size, state ownership, capital, current ratio, intangible assets) and host-country characteristics (GDP per capita and annual growth rate). Ordinary Least Squares (OLS) regression with robust standard errors was used, with bias-corrected and accelerated bootstrap (BCa) methods employed to test the robustness of the results. The authors mean-centered the institutional distance and TMT characteristics variables before generating the interaction terms to address potential multicollinearity issues.

The study's key findings strongly support Hypothesis 1, confirming a negative relationship between institutional distance and MNE subsidiary performance. This negative relationship was significantly amplified by an increase in expatriates (Hypothesis 2), indicating that home-country experienced managers struggled to manage the challenges of institutional distance effectively. This suggests that sending large numbers of expatriate managers can negatively impact the performance of MNE subsidiaries within institutions that are different from their home country institutions. Conversely, Hypothesis 3 was also supported: a higher number of managers with host-country experience mitigated the negative effect of institutional distance. This points to the significant benefits of selecting managers with prior host-country experience and familiarization with the local market to better handle the institutional differences. Hypothesis 4a also finds support, demonstrating that a more diverse international work experience among TMT members weakened the negative influence of institutional distance on performance. Further analysis (Hypothesis 4b) revealed that international experience gained in weak-institution markets had a more salient mitigating effect compared to experience from strong-institution markets. The findings are graphically presented in figures illustrating the moderation effects at different percentiles of the moderating variables. The robustness checks using IEF instead of WGI largely confirmed the main results, except for the moderation effect of expatriates, which was not statistically significant in the robustness check. The results remain largely consistent when alternative measurement tools were used.

The findings support the integration of the TMT perspective into institutional management theories. They demonstrate that the impact of institutional distance is not uniform and is significantly influenced by the composition and experience of the TMT. The results suggest that selecting managers with local experience can help MNEs overcome the liability of foreignness. The importance of diverse international experience, especially in challenging markets, highlights the value of learning and adaptability in successfully navigating diverse institutional settings. The study’s focus on the micro-level TMT factors extends the existing literature that largely relies on macro-level analysis of firm-level characteristics. The difference in the moderation effects between experiences in weak versus strong institutional environments emphasizes the importance of contextual factors and further nuanced understanding of how international experience can inform effective management in various institutional contexts. The authors acknowledge the limitation of their analysis in not considering other factors that might contribute to subsidiary performance, such as individual manager characteristics.

This study significantly contributes to the international business and TMT literature by examining the moderating role of TMT work experience in the institutional distance-subsidiary performance relationship. It demonstrates the value of selecting TMT members with relevant host-country experience and emphasizing international experience diversity, particularly from weak-institution markets. Future research could explore the complexity of institutions beyond the abstract construct of institutional distance, employing longitudinal data and qualitative methods to gain a deeper understanding of the interplay between TMT characteristics and specific institutional contexts.

The study's limitations include focusing on institutional distance as an abstract construct, which might overlook the nuances of specific institutional contexts. The reliance on cross-sectional data restricts the ability to capture dynamic changes in institutional distance and TMT influence over time. Future research incorporating longitudinal data and qualitative methods could address this limitation. The study also predominantly focuses on Chinese MNEs, which could limit the generalizability of the findings to other contexts.