Doing good by combating bad in the digital world: Institutional pressures, anti-corruption practices, and competitive implications of MNE foreign subsidiaries

Abstract

This study extends nascent research on international corporate social responsibility (CSR) by positing that foreign subsidiaries of multinational enterprises (MNEs) can overcome legitimation challenges they face when operating abroad. By integrating an institutional view, research from international business, and CSR literature, we examine how host-country institutional pressures may motivate subsidiaries to respond to such pressures by avoiding corrupt acts. We analyze how strategic responses to anti-corruption can improve firm reputation and innovativeness in a rapidly digitalized world. Using a survey sample of 216 subsidiaries operating in China, we investigate our hypotheses and find supportive evidence that foreign subsidiaries are likely to engage in anticorruption practices (ACPs) when they face strong institutional pressure. We also provide evidence that engagement in such ACPs is positively associated with enhanced firm reputation and innovativeness. The contribution of this non-market mechanism to innovativeness is strong when the digitization capability of the subsidiaries is high.