Signaling behavioral intent through better governance: A study of emerging market multinational enterprises

Abstract

This article investigates the link between the degree of internationalization and enhancement in corporate governance attributes by emerging market multinational enterprises (EMNEs). Using the theoretical underpinnings of signaling theory, we propose that enhancement in corporate governance attributes is a strategic lever used by EMNEs to signal transparency and trustworthiness to mitigate concerns of transactional inefficiency in the minds of host nation value-chain stakeholders. We hypothesize and find support to show that EMNEs improve their governance attributes as they increase their degree of internationalization. Furthermore, we find that the prior relational embeddedness of EMNEs weakens this baseline relationship; however, for a service sector EMNE, this relationship is strengthened. We tested these hypotheses on a large dataset of 12,551 firm-year observations for 1757 firms from India for 2005–2019.