Integration-oriented strategies, host market corruption and the likelihood of foreign subsidiary exit from emerging markets

Abstract

Extant research has found that more pronounced levels of corruption in foreign host emerging markets increase the likelihood that subsidiaries established by multinational enterprises (MNEs) from developed countries will exit. We synthesize insights from the organizational perspective of corruption and the integration-responsiveness paradigm to propose that integration-oriented strategies will weaken the positive relationship between corruption and the likelihood of exit at high levels of host market corruption. We develop and test hypotheses pertaining to the main effect of corruption on the likelihood of subsidiary exit, as well as the moderating impacts of a firm’s equity ownership strategy and its expatriate staffing strategy upon this relationship. We theorize that uncertainty operates as the mechanism that underpins the corruption-market exit relationship, and that an MNE’s strategic choices with respect to its subsidiary investments contribute to reducing this uncertainty. We find that an increase in the foreign-investing MNE’s equity ownership share negatively moderates the positive relationship between corruption and the likelihood that foreign subsidiaries established by developed market MNEs will exit host emerging markets when corruption is high. However, the marginal effects results do not support the expatriate staffing strategy hypothesis. Our work provides guidance to developed country MNEs that seek insights with respect to the utility of strategies that might be implemented in host emerging markets characterized by more pronounced levels of corruption.