Abstract: The outward foreign direct investment (OFDI) strategy of emerging market multinational enterprises (EMMEs) is seen as an attempt to catch up with innovation, in which the distance between home and host countries is critical. However, most of the prior researches on the effect of distance on EMMEs' innovation catch-up studied institutional distance in general, or only analyzed the single dimension of institutional distance, which leads to one-sided conclusion without regard to the richness and multi-dimension of the concept of distance. Therefore, this paper examines the impact mechanism and the effect boundary of the knowledge distance and the institutional distance on the innovation catch-up process of EMMEs. Using the panel data of family firms listed in Shanghai and Shenzhen stock exchanges from 2004 to 2015, the empirical study reaches the following conclusions:(1) The knowledge distance between the host country and the home country strengthens the promotion effect of OFDI on innovation output, while the institutional distance weakens the effect of OFDI on innovation output; (2) Firm's R&D ability positively moderates the moderating effect of knowledge distance, while political connection negatively moderates the moderating effect of institutional distance; (3) In addition, we further conduct a pairwise combination of knowledge distance and institutional distance, and find through subgroup regression analysis that the benefits brought by knowledge distance are not enough to compensate for the costs caused by institutional distance. This paper not only enriches the application of institutional distance in the multinational strategy of enterprises, but also deepens the research on the innovation catch-up performance of OFDI of EMMEs from the macro and micro composite levels, which is of practical significance to the internationalization and innovation strategy of Chinese enterprises.

Key words: innovation catch-up, knowledge distance, institutional distance, EMMEs, double moderating effect