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Levels of Institutional Arbitrage: Complementarity in Institutional Contexts and Locational Portfolio Switching

Wednesday, May 25, 2016, 11:00 am – 12:30 pm

We examine locational portfolio switching as mechanism for institutional arbitrage. Institutional arbitrage involves the optimization of the institutional contexts of firms’ home and possible host countries. Our stylized framework suggests three possible levels of arbitrage: hysteresis (in a stable home country), escape (for a highly unstable home country) and in the middle case when there is some but potentially manageable instability, locational portfolio switching. Our focus is on the middle case and we argue that changing institutional instability in an investment locale can trigger a dynamic process by which firms shift and rebalance the portfolio of institutional locations across which they operate. We argue in a longitudinal (1956–2012) study of the South African case that such locational portfolio switching represents one form of arbitrage.

John Luiz is Professor at the Graduate School of Business at the University of Cape Town specializing in International Business in Emerging Markets. John is widely published (in excess of 80 articles in leading journals, the co-author and/or editor of several books, and over 20 book chapters). He works as a consultant and has undertaken research and training for various international agencies, and at several leading multinational and South African corporations and public entities. He has associations at both teaching and research level with numerous international universities.