Legitimacy and Institutional Governance Infrastructure: Understanding Political Risk from a Chinese MNE Perspective

Abstract

While the political risk associated with Chinese multinational enterprises’ (MNEs) international expansion has generated considerable interest, little attention has been paid to whether Chinese firms’ perceived level of political risk in host countries can be explained by the conventional analytical framework focusing on host-country governance infrastructure and what determines their perceived level of risk in international markets. Drawing insights from the neo-institutional theory, this chapter examines Chinese MNEs’ legitimacy in host countries and how it can shape their perceived level of political risk. Using survey data, we found that while host-country institutional governance infrastructure remains important in explaining firms’ perceived political risk, their effect diminishes when considering host-country stakeholders’ legitimacy judgement. Our findings highlight the need to conceptualize political risk from emerging-economy MNEs’ perspective.