Travel time and the liability of distance in foreign direct investment: Location choice and entry mode

Measures of geographic distance are often used to proxy for the impact of spatial separation on firm decisions and performance. We develop a construct, dyad travel time, to measure the friction of interacting and costs of uncertainty from ex post behavioral monitoring across non-collocated sites. We measure the actual time required to travel between 1171 parent-subsidiary dyads, and show that dyad travel time (but not geographic distance) has significant predictive power in firm governance and location decisions. While prior literature has independently modeled these, we specify a simultaneous model offering stronger support for the interrelation of these decisions. Journal of International Business Studies (2012) 43, 525-535. doi:10.1057/jibs.2012.10