The interplay between home and host country institutions in an emerging market context: Private equity in Latin America

Santiago Mingo, Marc Junkunc, Francisco Morales

Research output: Contribution to journalArticlepeer-review

38 Scopus citations

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.

Original languageEnglish
Pages (from-to)653-667
Number of pages15
JournalJournal of World Business
Volume53
Issue number5
DOIs
StatePublished - Nov 2018

Keywords

  • Emerging markets
  • Home country institutions
  • Host country institutions
  • Latin America
  • Private equity

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