MNEs and corruption: the impact of national institutions and subsidiary strategy

TLDR

The pressure MNE subsidiaries face to engage in corrupt practices rises with the institutionalization of corruption in both host and home countries. The study examines how an MNE’s home‑country corruption environment influences the corruption pressure it faces abroad, and how this relationship is moderated by its localization strategy. Results show that higher host‑country corruption increases subsidiaries’ bribery pressure, while the influence of the home‑country corruption environment is contingent on localization strategy and the presence of local partners, offering managers insights into mitigating exposure to local institutional pressures. © 2010 John Wiley & Sons, Ltd.

Abstract

Abstract We argue that the pressure MNE subsidiaries face to engage in corrupt practices in their host country varies positively with the institutionalization of corrupt practices in both host and home country environments. We further argue that the relationship between an MNE's home country environment and the pressure it faces in the host country is moderated by its localization strategy. Results suggest a positive relationship between the host country corruption environment and the pressure subsidiaries face to engage in bribery locally. Mixed results emerged concerning MNEs from home countries participating in the OECD Convention for Combating Bribery. Results concerning the impact of the home country corruption environment are best viewed in light of significant moderating effects. When MNEs did not have local partners, firms from less corrupt home countries reported less pressure to engage in corrupt practices locally; however, the presence of local partners eliminated this relationship. Results will help managers understand the pressures their firm is likely to face when operating in corrupt host country environments, and also offer guidance concerning how the firm might reduce its exposure to those local institutional pressures. Copyright © 2010 John Wiley & Sons, Ltd.