The Dominant Practice for Foreign Subsidiary Staffing and the Subsidiary Performance

This study examines whether isomorphic behavior by multinational corporations positively or negatively affect the performance of foreign subsidiaries. Although previous studies find that multinational corporations have a tendency to mimic practices adopted by other firms, the financial consequences of mimetic behavior remains uncovered. This study addresses multinational corporations\u27 isomorphic behavior regarding foreign subsidiary staffing and hypothesizes the relationship between the imitation of the dominant practice for subsidiary staffing and the subsidiary performance. The panel dataset consisting of 3,284 foreign subsidiaries of multinational corporations are used to test the hypotheses. The results obtained from a fixed effect model indicate that the imitation of the dominant practice adopted in the host country negatively affects the subsidiary performance. This study also finds that the negative relationship between mimetic behavior and subsidiary performance becomes greater as the institutional distance between the host country and the home country increases. The results of this study suggest that isomorphic behavior in pursuit of legitimacy is accompanied by the loss of efficiency