The interplay of national distances and regional networks: Private equity investments in emerging markets

Integrating social network theory with the literature on national distance, we examine how the investment strategy followed by a private equity (PE) firm in an emerging market is affected by the interplay between two important types of national distances institutional and geographic and the firms centrality in the regional syndication network. Covering over 5,000 investment transactions, we use a dataset of more than 500 PE firms based in both developed and emerging markets targeting three emerging market regions Latin America, Southeast Asia, and Eastern Europe from 1996 to 2011. The results show that, depending on the level of centrality of PE firms in regional syndication networks, institutional and geographic distances can have differing effects both in magnitude and direction on their investment strategies in emerging markets. Moreover, these effects are contingent on whether the PE firm is from a developed market or an emerging market. We conclude that different types of national distances can operate in dissimilar ways depending on (1) firm-level factors defined at the regional level such as centrality in the regional syndication network and (2) the developed market or emerging market nature of the PE firm.