Innovation in multinational enterprises (MNEs) depends critically on how firms develop and utilize human capital through human resource management (HRM) practices. Labor market regulations, as an essential institutional domain, shape these processes. However, existing research on labor market regulations typically assumes that firms operate within a single regulatory setting, offering limited insight into MNEs that face diverse labor market regulations across countries. These issues are especially relevant for emerging market multinational enterprises (EMNEs), which often expand abroad to acquire managerial expertise that is difficult to develop at home. This study examines how labor market regulation diversity affects EMNE innovation. Using a panel dataset of 1332 Chinese EMNEs from 2009 to 2019, we find an inverted U-shaped relationship: moderate labor market regulation diversity enhances innovation by expanding opportunities for learning and recombination, whereas excessive diversity imposes cognitive and compliance burdens that hinder innovation. We also show that this relationship is moderated by two human-capital-related conditions—high-tech industry context and board human resource (HR) expertise—both of which flatten the inverted U-shaped pattern. Overall, this study advances research on labor market regulations, institutional diversity, and innovation.
Guo et al. (Tue,) studied this question.