Institutional Distance, Internal Governance and Transnational Operations of Chinese Firms: Perspective on Transaction Costs

Institutional distance brings greater information asymmetry in transnational operations and generates more transaction costs in foreign subsidiaries. It makes costs or risks in transnational agency exceed the extent at home. From the perspective of transaction costs, the relations among institutional distance, transaction costs and corporate governance are analyzed. The article applies two major properties leading to transaction costs, i.e. uncertainty; asset specificity to research internal transaction characteristics and confirm corporate governance subjects in foreign subsidiaries of Chinese firms. The article puts forward the corresponding governance arrangements on boards, executives and local employees, discusses to reduce institutional risks and transaction costs by foreign adaption and common governance. It concludes with a proposition that corporate governance helps Chinese firms to reach global coordination and super internal efficiency in transnational operations.