Foreign Direct Investments: Examining the Roles of Democracy, Corruption and Judicial Systems Across Countries

Abstract

The paper utilizes a novel agency theory perspective to argue that governments are opportunistic agents of citizens at the country level. Extending extant international business literature, this study theoretically integrates various antecedents of foreign direct investments examined discretely in past studies and explains how the natures of governments influence the foreign direct investment decisions. The paper proposes a moderated mediation model where control mechanism such as access to justice moderates the strength of the mediated relationship between democracy and foreign direct investments via absence of corruption, such that the mediated relationship will be stronger under high control mechanism than under low control mechanism. Based on a sample of 90 countries, the empirical results indicate that democracy positively influences the amount of foreign direct investments through absence of corruption. In addition, access to justice moderates the relationships. Theoretical and managerial implications of the findings are discussed.