MNE-state bargaining theory explains how the benefits of foreign direct investment (FDI) are divided between multinational enterprises (MNEs) and host economies. Extant theory relies on the use of outside options – the second-best utilization of the resources committed to an FDI project – to bound the bargaining space between MNE and state. In practice, however, the second-best option for a specific FDI project frequently is another FDI project, with its value distribution in turn depending on the value distribution of the original project. We propose a solution to this circular reasoning, by reinterpreting MNE-state bargaining as a matching game between an industry’s MNEs and host countries. This resolves the issue of circularity and clarifies that the structure of an FDI market has a significant influence on each side's bargaining power. We propose that an industry's geographic and corporate concentration and the heterogeneity of its production functions determine its structural bargaining power balance. Relying on recent advances in maximum score estimation, we estimate structural bargaining power in 2203 industry-years between 2013 and 2023 covering a total of 101,785 FDI events and find support for our hypothesis.

We examine how domestic and foreign firms strategically respond through clean innovation to the same environmental regulation change in a regional market. We leverage the unique context of the European automotive industry and its first mandatory CO2 emission standards regulation for new passenger cars adopted in 2009. Using an array of estimations and operationalizations, we find that foreign firms respond by introducing substantially more clean innovation than domestic firms. This effect is even stronger in the presence of high regulatory uncertainty associated with the heterogeneous implementation of the regulation across the countries in the regional market. Our proposed rationale is that foreign firms are more responsive, because less capable of resolving regulatory uncertainty and in a greater need to maintain their legitimacy than domestic firms.

The configurational nature of institutions views the interrelationship of institutions as configurations that influence firms’ behavior and success, even though firms differ in their ability to deal with each institutional configuration. However, our understanding of how institutional and firm-level conditions complement each other, and influence firms’ performance remains scarce. We argue that firms achieve high firm performance by relying on the complementary and substitutive benefits provided by the effective institutional configurations, and by relying on firms’ specific advantages as mechanisms to cope with ineffective institutional configurations. Thus, we employ an inductive theoretical approach using fsQCA on a dataset of EU firms. Our results advance a theoretical framework with different combinations of institutional and firm-level conditions that yield different pathways toward high firm performance. We contribute to further understanding the institutional complexities on firms’ performance, namely advancing it is contingent on the firms’ ability to deal with the institutional configuration.