Article: Directional financial and knowledge distances and foreign direct investment location choice: the moderating role of entry mode Journal: European Journal of International Management (EJIM) 2026 Vol.30 No.1 pp.126 - 148 Abstract: Recent international business studies have paid attention to the directionality of cross-national distance instead of solely using symmetrical and absolute value. In this paper we investigate the impacts of directional financial distance and knowledge distance on emerging market firm's Foreign Direct Investment (FDI) location choice, and the moderating role of entry mode. Using a sample of Chinese publicly listed manufacturing firms during 2004-2014, our results note the importance of directionality, as well as the bright side of distance rather than liability. Chinese firm's FDI location choice is encouraged by the distances between China and more financially and technologically developed countries, while is discouraged by distances between China and the less financially and technologically developed countries. In addition, the empirical results show that entry mode serves as an important contingency in the relationship between directional distance and FDI location choice. Our findings reveal that an appropriate market entry strategy could work as a benefit-enhancement or risk-reduction rationale, which helps firms to manage cross-national distances. Inderscience Publishers - linking academia, business and industry through research

Title: Directional financial and knowledge distances and foreign direct investment location choice: the moderating role of entry mode

Authors: Xuchang Chen; Ping Lv

Addresses: School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing, China; Guanghua School of Management, Peking University, Haidian District, Beijing, China ' School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing, China

Abstract: Recent international business studies have paid attention to the directionality of cross-national distance instead of solely using symmetrical and absolute value. In this paper we investigate the impacts of directional financial distance and knowledge distance on emerging market firm's Foreign Direct Investment (FDI) location choice, and the moderating role of entry mode. Using a sample of Chinese publicly listed manufacturing firms during 2004-2014, our results note the importance of directionality, as well as the bright side of distance rather than liability. Chinese firm's FDI location choice is encouraged by the distances between China and more financially and technologically developed countries, while is discouraged by distances between China and the less financially and technologically developed countries. In addition, the empirical results show that entry mode serves as an important contingency in the relationship between directional distance and FDI location choice. Our findings reveal that an appropriate market entry strategy could work as a benefit-enhancement or risk-reduction rationale, which helps firms to manage cross-national distances.

Keywords: financial distance; knowledge distance; directionality; foreign direct investment; entry mode; emerging market.

DOI: 10.1504/EJIM.2026.155577

European Journal of International Management, 2026 Vol.30 No.1, pp.126 - 148

Received: 25 Jun 2021
Accepted: 30 Sep 2021
Published online: 06 Aug 2026 *

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Title: Directional financial and knowledge distances and foreign direct investment location choice: the moderating role of entry mode

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