Does Institutional Quality Strengthen The Positive Influence of Offshore R&D Strategy on the Firm Productivity?

Abstract

The purpose of this study is to examine whether the host country’s institutional quality has a significant moderating effect on the relationship between the offshore R&D strategy in the local environment and firm productivity. In addition, due to the firm’s operating mode in the host country being distinguished as either exploitation-oriented or exploration-oriented, we further examine whether the moderating effects of institutional quality is influenced by the different types of operating mode in the host country. This analysis takes advantage of a longitudinal dataset of Taiwan-based firms and their most prominent subsidiary as well as the institutional quality indices developed by the World Economic Forum (WEF) over the 2006-2009 period. The empirical results show that there are different moderating role of institutional quality between the exploitation-oriented and exploration-oriented mode in terms of the relationship between offshore R&D and firm productivity, which indicates that the institutional quality in the host countries does not necessarily strengthen the positive influence of the offshore R&D strategy on firm productivity as do the extant studies in the previous literature.