• International Area Studies Review
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• v.22 no.1
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• pp.61-78
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• 2018

Foreign subsidiary operation modes can be broadly divided into horizontal subsidiaries and vertical subsidiaries. According to institutional theory, foreign subsidiary operation mode differs depending on the host country institution. This study examines the effects of formal and informal institution on the foreign subsidiary operational mode of Korean firms. As a result of the empirical analysis, the higher the cultural distance and the lower political risks, the more favored the vertical foreign operation mode than the horizontal foreign operation mode. On the other hand, the higher the economic freedom and the lower corruption, the more favored the horizontal foreign operation mode than the vertical foreign operation mode.