The impact of institutional distance of the relationship between headquarters and subsidiaries: the effects of informal institutions

Abstract

Informal institutions have an impact on a lot of aspects of international business. This research focuses on the impact of informal institutions on the relationship between headquarters and their subsidiaries located in host countries. Informal institutions include societal norms, values, culture, language, communication style, and traditions. To comprehend the dynamics of this relationship, institutional theory, social exchange theory, and network theory are implemented. The study uses a systematic literature review, analyzing 43 articles. Findings emphasize that the HQ-Subsidiary relationship is greatly influenced by high informal institutional distance, having outcomes that are both positive and negative. The report offers advice to businesses on how to benefit from this distance and overcome the issues that may arise.