The Impact of Institutional Distance on the Business Performance of Overseas Subsidiaries: A Study on the Moderating Role of Parent Company ESG Based on Signaling Theory Perspective
The Impact of Institutional Distance on the Business Performance of Overseas Subsidiaries: A Study on the Moderating Role of Parent Company ESG Based on Signaling Theory Perspective
XIAO Ting1, CHEN Zhouyong2
1. School of Digital Economics, Jiangxi University of Finance and Economics, Nanchang 330013, China; 2. School of International Economics and Politics, Jiangxi University of Finance and Economics, Nanchang 330013, China
Abstract From the perspective of signaling theory, this study utilizes panel data of overseas subsidiaries of listed companies from 2010 to 2021 to examine the effect of institutional distance on the operating performance of overseas subsidiaries, as well as its mechanism of action, under the positive ESG signaling of the parent company. The results indicate that institutional distance has an adverse impact on the operating performance of Chinese firms’ overseas subsidiaries. Moreover, the negative perceptions of host country residents towards the overseas subsidiaries and the resource allocation from the parent company to the overseas subsidiaries play mediating roles in this relationship. In addition, the positive signals sent by the parent company’s good ESG performance can effectively mitigate the negative impact of institutional distance on the operating performance of its overseas subsidiaries. The mediating mechanism reveals that the parent company’s ESG (Environmental, Social and Governance) practices mitigate the adverse effects of institutional distance partly by reducing the negative perceptions of host country residents towards the overseas subsidiaries and by increasing the parent company’s resource allocation to these subsidiaries. In other words, the parent company’s ESG performance plays a mediated moderating role. Finally, the effect of the parent company’s ESG as a positive signal in alleviating the adverse impact of institutional distance differs across different host countries and firm characteristics. The conclusions of the study provide important policy implications for Chinese overseas subsidiaries to better “ go global. ”
XIAO Ting,CHEN Zhouyong. The Impact of Institutional Distance on the Business Performance of Overseas Subsidiaries: A Study on the Moderating Role of Parent Company ESG Based on Signaling Theory Perspective. Economic Survey, 2025, 42(2): 0121.
2025, Vol. 42 
