The impact of host and home country democratization on multinational enterprises’ performance

Abstract

In international business literature, limited attention has been paid to the role of democratization and its impact on firm-level outcomes. This study examines the relationship between democratization and market share gain as a performance indicator of multinational enterprises operating across seven industries in six emerging markets and six advanced economies. We differentiate between advanced economy multinational enterprises (AMNEs) and emerging market multinational enterprises (EMNEs) to compare their relative performance. Utilizing data on democracy indices, FDI inflows, and firm market share from Our World in Data, World Bank Data, and Euromonitor Passport, we explore the impact of both host and home country democratization on MNE performance using multiple linear regression. Drawing on institutional theory, our findings reveal that host country democratization may positively influence MNE performance, while home country democratization has a negative effect. Furthermore, EMNEs outperform AMNEs, demonstrating their adaptability in diverse political environments. We provide implications of our findings for research and practice.