IDEAS home Printed from https://ideas.repec.org/a/spr/manint/v58y2018i5d10.1007_s11575-017-0324-0.html
   My bibliography  Save this article

The Effect of Corporate Political Activity on MNC Subsidiary Legitimacy: An Institutional Perspective

Author

Listed:
  • Shantanu Banerjee

    (University of Queensland Business School)

  • Sunil Venaik

    (University of Queensland Business School)

Abstract

MNC subsidiaries engage in a variety of corporate political activities to gain legitimacy in the host country. Based on institutional theory, our study examines five types of strategies that MNC subsidiaries pursue to gain legitimacy in foreign markets. Using data from Australian subsidiaries of MNCs operating in different industries, and whose parents originate from 28 different countries, we find that mimetic isomorphism strategy has the strongest effect whereas information strategy has no effect on subsidiary legitimacy. The other three strategies, namely, financial, constituency building and relational have strong to moderate effects on subsidiary legitimacy. In addition, we show that multiple CPA strategies are essential and work together synergistically to contribute to the legitimacy of MNC subsidiaries. Our paper provides empirical support to the widely recognized need for MNC subsidiaries to engage in different types of CPA to legitimize their operations in diverse institutional contexts across the globe.

Suggested Citation

  • Shantanu Banerjee & Sunil Venaik, 2018. "The Effect of Corporate Political Activity on MNC Subsidiary Legitimacy: An Institutional Perspective," Management International Review, Springer, vol. 58(5), pages 813-844, October.
    • Handle: RePEc:spr:manint:v:58:y:2018:i:5:d:10.1007_s11575-017-0324-0
    DOI: 10.1007/s11575-017-0324-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11575-017-0324-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11575-017-0324-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dikova, Desislava, 2009. "Performance of foreign subsidiaries: Does psychic distance matter?," International Business Review, Elsevier, vol. 18(1), pages 38-49, February.
    2. Ilya Okhmatovskiy, 2010. "Performance Implications of Ties to the Government and SOEs: A Political Embeddedness Perspective," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 1020-1047, September.
    3. Jonathan P. Doh & Thomas Lawton & Tazeeb Rajwani, 2012. "Advancing Nonmarket Strategy Research : Institutional Perspectives in a Changing World," Post-Print hal-02276718, HAL.
    4. Hadani, Michael, 2012. "Institutional ownership monitoring and corporate political activity: Governance implications," Journal of Business Research, Elsevier, vol. 65(7), pages 944-950.
    5. Peter Rodriguez & Donald S Siegel & Amy Hillman & Lorraine Eden, 2006. "Three lenses on the multinational enterprise: politics, corruption, and corporate social responsibility," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(6), pages 733-746, November.
    6. Sunil Venaik & David F Midgley & Timothy M Devinney, 2005. "Dual paths to performance: the impact of global pressures on MNC subsidiary conduct and performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(6), pages 655-675, November.
    7. Ilídio Barreto & Charles Baden‐Fuller, 2006. "To Conform or To Perform? Mimetic Behaviour, Legitimacy‐Based Groups and Performance Consequences," Journal of Management Studies, Wiley Blackwell, vol. 43(7), pages 1559-1581, November.
    8. Daniel Kaufmann & Aart Kraay & Massimo Mastruzzi, 2003. "Governance Matters III: Governance Indicators for 1996-2002," Macroeconomics 0308006, University Library of Munich, Germany.
    9. Rajwani, Tazeeb & Liedong, Tahiru Azaaviele, 2015. "Political activity and firm performance within nonmarket research: A review and international comparative assessment," Journal of World Business, Elsevier, vol. 50(2), pages 273-283.
    10. Christine M Chan & Shige Makino, 2007. "Legitimacy and multi-level institutional environments: implications for foreign subsidiary ownership structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 621-638, July.
    11. Nell, Phillip C. & Puck, Jonas & Heidenreich, Stefan, 2015. "Strictly limited choice or agency? Institutional duality, legitimacy, and subsidiaries’ political strategies," Journal of World Business, Elsevier, vol. 50(2), pages 302-311.
    12. Armstrong, J. Scott & Overton, Terry S., 1977. "Estimating Nonresponse Bias in Mail Surveys," MPRA Paper 81694, University Library of Munich, Germany.
    13. Wöcke, Albert & Moodley, Terence, 2015. "Corporate political strategy and liability of foreignness: Similarities and differences between local and foreign firms in the South African Health Sector," International Business Review, Elsevier, vol. 24(4), pages 700-709.
    14. De Villa, Maria A. & Rajwani, Tazeeb & Lawton, Thomas, 2015. "Market entry modes in a multipolar world: Untangling the moderating effect of the political environment," International Business Review, Elsevier, vol. 24(3), pages 419-429.
    15. Richard P. Rumelt, 1982. "Diversification strategy and profitability," Strategic Management Journal, Wiley Blackwell, vol. 3(4), pages 359-369, October.
    16. Amy J. Hillman & Asghar Zardkoohi & Leonard Bierman, 1999. "Corporate political strategies and firm performance: indications of firm‐specific benefits from personal service in the U.S. government," Strategic Management Journal, Wiley Blackwell, vol. 20(1), pages 67-81, January.
    17. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2003. "Government matters III : governance indicators for 1996-2002," Policy Research Working Paper Series 3106, The World Bank.
    18. Shirodkar, Vikrant & Mohr, Alexander T., 2015. "Explaining foreign firms’ approaches to corporate political activity in emerging economies: The effects of resource criticality, product diversification, inter-subsidiary integration, and business tie," International Business Review, Elsevier, vol. 24(4), pages 567-579.
    19. Sea-Jin Chang & Arjen van Witteloostuijn & Lorraine Eden, 2010. "From the Editors: Common method variance in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(2), pages 178-184, February.
    20. Vikrant Shirodkar & Alexander T. Mohr, 2015. "Resource Tangibility and Foreign Firms’ Corporate Political Strategies in Emerging Economies: Evidence from India," Management International Review, Springer, vol. 55(6), pages 801-825, December.
    21. Jon Reast & François Maon & Adam Lindgreen & Joëlle Vanhamme, 2013. "Legitimacy-Seeking Organizational Strategies in Controversial Industries: A Case Study Analysis and a Bidimensional Model," Journal of Business Ethics, Springer, vol. 118(1), pages 139-153, November.
    22. Guilhem Bascle, 2008. "Controlling for endogeneity with instrumental variables in strategic management research," Post-Print hal-00576795, HAL.
    23. W. Chan Kim, 1988. "The effects of competition and corporate political responsiveness on multinational bargaining power," Strategic Management Journal, Wiley Blackwell, vol. 9(3), pages 289-295, May.
    24. Timothy P Blumentritt & Douglas Nigh, 2002. "The Integration of Subsidiary Political Activities in Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 57-77, March.
    25. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Eric Yanfei Zhao & Greg Fisher & Michael Lounsbury & Danny Miller, 2017. "Optimal distinctiveness: Broadening the interface between institutional theory and strategic management," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 93-113, January.
    26. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    27. Andreas Georg Scherer & Guido Palazzo & David Seidl, 2013. "Managing Legitimacy in Complex and Heterogeneous Environments: Sustainable Development in a Globalized World," Journal of Management Studies, Wiley Blackwell, vol. 50(2), pages 259-284, March.
    28. Thomas Lawton & Steven Mcguire & Tazeeb Rajwani, 2013. "Corporate Political Activity : A Literature Review and Research Agenda," Post-Print hal-02312913, HAL.
    29. David Reeb & Mariko Sakakibara & Ishtiaq P Mahmood, 2012. "From the Editors: Endogeneity in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 211-218, April.
    30. Susan L Young & Mona V Makhija, 2014. "Firms’ corporate social responsibility behavior: An integration of institutional and profit maximization approaches," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(6), pages 670-698, August.
    31. Dominik Rueede & Karin Kreutzer, 2015. "Legitimation Work Within a Cross-Sector Social Partnership," Journal of Business Ethics, Springer, vol. 128(1), pages 39-58, April.
    32. Christine Oliver, 1997. "Sustainable competitive advantage: combining institutional and resource‐based views," Strategic Management Journal, Wiley Blackwell, vol. 18(9), pages 697-713, October.
    33. Frank Hond & Kathleen A. Rehbein & Frank G. A. Bakker & Hilde Kooijmans-van Lankveld, 2014. "Playing on Two Chessboards: Reputation Effects between Corporate Social Responsibility (CSR) and Corporate Political Activity (CPA)," Journal of Management Studies, Wiley Blackwell, vol. 51(5), pages 790-813, July.
    34. Ozer, Mine, 2010. "Top management teams and corporate political activity: Do top management teams have influence on corporate political activity?," Journal of Business Research, Elsevier, vol. 63(11), pages 1196-1201, November.
    35. William P. Wan & Amy J. Hillman, 2006. "One of these things is not like the others: What contributes to dissimilarity among MNE subsidiaries’ political strategy?," Management International Review, Springer, vol. 46(1), pages 85-107, February.
    36. Scott Dawson & Dave Dickinson, 1988. "Conducting International Mail Surveys: The Effect of Incentives on Response Rates with an Industry Population," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 491-496, September.
    37. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Sinziana Dorobantu & Aseem Kaul & Bennet Zelner, 2017. "Nonmarket strategy research through the lens of new institutional economics: An integrative review and future directions," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 114-140, January.
    38. Amy J Hillman & William P Wan, 2005. "The determinants of MNE subsidiaries' political strategies: evidence of institutional duality," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(3), pages 322-340, May.
    39. Charles JP Chen & Yuan Ding & Chansog (Francis) Kim, 2010. "High-level politically connected firms, corruption, and analyst forecast accuracy around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(9), pages 1505-1524, December.
    40. Meng Zhao & Seung Ho Park & Nan Zhou, 2014. "MNC strategy and social adaptation in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 45(7), pages 842-861, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Iiris Saittakari & Tiina Ritvala & Rebecca Piekkari & Perttu Kähäri & Sami Moisio & Tomas Hanell & Sjoerd Beugelsdijk, 2023. "A review of location, politics, and the multinational corporation: Bringing political geography into international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(6), pages 969-995, August.
    2. Riaz, Zahid & Ray, Pradeep & Ray, Sangeeta, 2022. "The impact of digitalisation on corporate governance in Australia," Journal of Business Research, Elsevier, vol. 152(C), pages 410-424.
    3. Shirodkar, Vikrant & Liedong, Tahiru Azaaviele & Rajwani, Tazeeb & Lawton, Thomas C., 2024. "MNE nonmarket strategy in a changing world: Complexities, varieties, and a values-based approach," International Business Review, Elsevier, vol. 33(2).
    4. Curchod, Corentin & Patriotta, Gerardo & Wright, Mike, 2020. "Self-categorization as a nonmarket strategy for MNE subsidiaries: Tracking the international expansion of an online platform," Journal of World Business, Elsevier, vol. 55(3).
    5. Qiaowen Zhang & Annalien de Vries, 2022. "Seeking Moral Legitimacy through Corporate Social Responsibility: Evidence from Chinese Manufacturing Multinationals," Sustainability, MDPI, vol. 14(9), pages 1-21, April.
    6. del-Castillo-Feito, Cristina & Blanco-González, Alicia & Hernández-Perlines, Felipe, 2022. "The impacts of socially responsible human resources management on organizational legitimacy," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    7. Earl, Anna & Michailova, Snejina, 2021. "Home governments and MNEs in Russia: Relationships and MNE external legitimacy," Journal of International Management, Elsevier, vol. 27(2).
    8. Shirodkar, Vikrant & Rajwani, Tazeeb & Stadler, Christian & Hautz, Julia & Mayer, Michael C.J., 2022. "Corporate Political Activity and Firm Performance: The Moderating Effects of International and Product Diversification," Journal of International Management, Elsevier, vol. 28(4).
    9. Jiang, Jiangang & Zhang, Jianhong, 2023. "Does political ideology matter in Chinese cross-border acquisitions?," Journal of Business Research, Elsevier, vol. 161(C).
    10. Verena Girschik, 2020. "Managing Legitimacy in Business‐Driven Social Change: The Role of Relational Work," Journal of Management Studies, Wiley Blackwell, vol. 57(4), pages 775-804, June.
    11. Debmalya Mukherjee & Satish Kumar & Naveen Donthu & Nitesh Pandey, 2021. "Research Published in Management International Review from 2006 to 2020: A Bibliometric Analysis and Future Directions," Management International Review, Springer, vol. 61(5), pages 599-642, October.
    12. Li, Zhi & Xu, Jia & Tian, Jingjing & Wei, Jiuchang, 2023. "Consumers’ reaction to automobile recalls: The role of corporate non-market strategies and interstate relations," International Business Review, Elsevier, vol. 32(1).
    13. Wang, Tao & Gao, Jie & Jia, Yu & Wang, Cheng Lu, 2022. "The double-edged sword effect of adaptation strategy on performance: The mediation of legitimacy and synergy," Journal of Business Research, Elsevier, vol. 139(C), pages 448-456.
    14. Muazza Muazza & Akhmad Habibi & Amirul Mukminin, 2023. "The Socially Responsible Human Resources Management and Its Impacts on the Organizational Legitimacy: The Case of Indonesian Employees," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 162-177.
    15. Lupton, Nathaniel C. & Baulkaran, Vishaal & No, Yeonji, 2022. "Subsidiary staffing, location choice, and shareholder rights effectiveness," Journal of Business Research, Elsevier, vol. 151(C), pages 222-231.
    16. Jonas Puck & Thomas Lawton & Alexander Mohr, 2018. "The Corporate Political Activity of MNCs: Taking Stock and Moving Forward," Management International Review, Springer, vol. 58(5), pages 663-673, October.
    17. Peprah, Augustine Awuah & Atarah, Bede Akorige & Kumodzie-Dussey, Makafui Kwame, 2024. "Nonmarket strategy and legitimacy in institutionally voided environments: The case of Jumia, an African e-commerce giant," International Business Review, Elsevier, vol. 33(2).
    18. Ren, Monica & Gao, Hongzhi, 2023. "Chinese State-Owned Multinationals' (SOMNEs) Subsidiary nonmarket strategies in Selective De-globalization: An integrated perspective of co-evolution theory and the yin-yang frame," Journal of International Management, Elsevier, vol. 29(6).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Banerjee, Shantanu & Venaik, Sunil & Brewer, Paul, 2019. "Analysing corporate political activity in MNC subsidiaries through the integration-responsiveness framework," International Business Review, Elsevier, vol. 28(5), pages 1-1.
    2. Shirodkar, Vikrant & Liedong, Tahiru Azaaviele & Rajwani, Tazeeb & Lawton, Thomas C., 2024. "MNE nonmarket strategy in a changing world: Complexities, varieties, and a values-based approach," International Business Review, Elsevier, vol. 33(2).
    3. Tahiru Azaaviele Liedong & Daniel Aghanya & Tazeeb Rajwani, 2020. "Corporate Political Strategies in Weak Institutional Environments: A Break from Conventions," Journal of Business Ethics, Springer, vol. 161(4), pages 855-876, February.
    4. Tahiru Azaaviele Liedong & Jedrzej George Frynas, 2018. "Investment Climate Constraints as Determinants of Political Tie Intensity in Emerging Countries: Evidence from Foreign Firms in Ghana," Management International Review, Springer, vol. 58(5), pages 675-703, October.
    5. Jonas Puck & Thomas Lawton & Alexander Mohr, 2018. "The Corporate Political Activity of MNCs: Taking Stock and Moving Forward," Management International Review, Springer, vol. 58(5), pages 663-673, October.
    6. Adomako, Samuel & Abdelgawad, Sondos G. & Ahsan, Mujtaba & Amankwah-Amoah, Joseph & Azaaviele Liedong, Tahiru, 2023. "Nonmarket strategy in emerging markets: The link between SMEs’ corporate political activity, corporate social responsibility, and firm competitiveness," Journal of Business Research, Elsevier, vol. 160(C).
    7. Klopf, Patricia & Nell, Phillip C., 2018. "How “space” and “place” influence subsidiary host country political embeddedness," International Business Review, Elsevier, vol. 27(1), pages 186-197.
    8. Liedong, Tahiru Azaaviele & Aghanya, Daniel & Jimenez, Alfredo & Rajwani, Tazeeb, 2023. "Corporate political activity and bribery in Africa: Do internet penetration and foreign ownership matter?," Journal of Business Research, Elsevier, vol. 154(C).
    9. Nell, Phillip C. & Puck, Jonas & Heidenreich, Stefan, 2015. "Strictly limited choice or agency? Institutional duality, legitimacy, and subsidiaries’ political strategies," Journal of World Business, Elsevier, vol. 50(2), pages 302-311.
    10. Shirodkar, Vikrant & Rajwani, Tazeeb & Stadler, Christian & Hautz, Julia & Mayer, Michael C.J., 2022. "Corporate Political Activity and Firm Performance: The Moderating Effects of International and Product Diversification," Journal of International Management, Elsevier, vol. 28(4).
    11. Peter Rodgers & Peter Stokes & Shlomo Tarba & Zaheer Khan, 2019. "The Role of Non-market Strategies in Establishing Legitimacy: The Case of Service MNEs in Emerging Economies," Management International Review, Springer, vol. 59(4), pages 515-540, August.
    12. Shirodkar, Vikrant & Batsakis, Georgios & Konara, Palitha & Mohr, Alexander, 2022. "Disentangling the effects of domestic corporate political activity and political connections on firms’ internationalisation: Evidence from US retail MNEs," International Business Review, Elsevier, vol. 31(1).
    13. Pei Sun & Jonathan P. Doh & Tazeeb Rajwani & Donald Siegel, 2021. "Navigating cross-border institutional complexity: A review and assessment of multinational nonmarket strategy research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(9), pages 1818-1853, December.
    14. Anna-Lena Maier, 2021. "Political corporate social responsibility in authoritarian contexts," Journal of International Business Policy, Palgrave Macmillan, vol. 4(4), pages 476-495, December.
    15. Gao, Yu & Yang, Zhuoer & Huang, Kuo-Feng & Gao, Shanxing & Yang, Wei, 2018. "Addressing the cross-boundary missing link between corporate political activities and firm competencies: The mediating role of institutional capital," International Business Review, Elsevier, vol. 27(1), pages 259-268.
    16. Tahiru Azaaviele Liedong, 2021. "Responsible Firm Behaviour in Political Markets: Judging the Ethicality of Corporate Political Activity in Weak Institutional Environments," Journal of Business Ethics, Springer, vol. 172(2), pages 325-345, August.
    17. Amrita Saha & Vikrant Shirodkar & Thomas C. Lawton, 2023. "Bimodal lobbying and trade policy outcomes: Evidence from corporate political activity under uncertainty in India," Journal of International Business Policy, Palgrave Macmillan, vol. 6(1), pages 24-46, March.
    18. Donbesuur, Francis & Zahoor, Nadia & Al-Tabbaa, Omar & Adomako, Samuel & Tarba, Shlomo Y., 2023. "On the performance of platform-based international new ventures: The roles of non-market strategies and managerial competencies," Journal of International Management, Elsevier, vol. 29(2).
    19. Nathaniel Boso & Joseph Amankwah-Amoah & Dominic Essuman & Oluwaseun E. Olabode & Patience Bruce & Magnus Hultman & James Kofi Kutsoati & Ogechi Adeola, 2023. "Configuring political relationships to navigate host-country institutional complexity: Insights from Anglophone sub-Saharan Africa," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(6), pages 1055-1089, August.
    20. Gammeltoft, Peter & Panibratov, Andrei, 2024. "Emerging market multinationals and the politics of internationalization," International Business Review, Elsevier, vol. 33(3).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:manint:v:58:y:2018:i:5:d:10.1007_s11575-017-0324-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.