Public institutions, governance capability, and platform internationalization: institutional substitution at home and abroad

Vollständiger Abstract

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Abstract Digital platforms often expand internationally faster than public institutions can evolve, raising the question of how they sustain operations in weak institutional environments. I theorize governance capability, defined as the firm-level ability to design, implement, and enforce rules regulating participant behavior, as a dual institutional substitute. When home-country institutions are weak, platforms develop governance capability to fill domestic institutional voids (substitution at home), establishing order and trust where public enforcement is limited. Once developed, this capability becomes transferable across borders, enabling platforms to navigate weak host-country institutions during internationalization (substitution abroad). Its effect is conditional: it is stronger when home country institutions are stronger than those of the host country, and for broker platforms whose governance routines can be replicated globally at lower cost. Using a longitudinal sample of 50 digital platforms from China and the United States entering 61 host countries between 1996 and 2023, I find support for these predictions. These results position governance capability as a portable institutional infrastructure, offering a capability-based alternative to structural responses such as diversification in institutionally weak contexts, and highlighting its role as a supply-side driver of platform internationalization that complements demand-side forces such as network effects.