De facto Property Rights Protection and MNC Location Choices

Although similar formal regulations to protect property rights have proliferated across many parts of the world, the adherence to these norms is not consistent across countries. As a result, countries with seemingly similar formal regulations pose very different hazards for investors. Departing from traditional studies that have focused on the formal regulations of host countries in explaining Multinational Corporations ’ (MNCs) perceptions of hazards and hence strategic actions, this paper argues that firms ’ location choices are influenced not just by de jure norms but also by their expectation of de facto protection. In addition, I examine the moderating effect of a firm’s international operations in mitigating this expected hazard. Using a panel of 161 firms from 16 home countries and their foreign investments in up to 66 host countries in the information services offshoring sector from 2002-2005 and novel measures, the empirical results show that MNC location choices are impacted by the estimated de facto protection of a host country. The effects are also moderated by the extent of a firm’s multinational operations.