Institutional origins of WOFS formal contracting: A judicial arbitrariness perspective

In drawing from neo-institutional theory and the institution-based view, this study provides new insights concerning how home and host country norms influence wholly owned foreign subsidiary (WOFS) formal contract utilization. Our analysis of 171 WOFSs operating in the Philippines suggests that parent home country uncertainty avoidance, as an institutionalized organizational practice, is positively related to WOFS utilization of formal contracts in governing interorganizational relationships. Our results also reveal that managerial perceptions of local judicial arbitrariness directly influence formal contract utilization, and moderate the positive relationship between parent home country uncertainty avoidance and WOFS formal contract utilization. Furthermore, when compared to managerial perceptions of national judicial arbitrariness, perceived local judicial arbitrariness will exhibit a stronger negative direct and indirect influence on WOFS formal contract utilization. Implications and future research directions are discussed.