Subnational corruption and foreign firms’ performance: Evidence from China

Abstract

As a social and economic phenomenon, corruption has attracted much scholarly attention in the field of international business. However, studies concerning corruption generally remain at the national level, overlooking heterogeneity in institutions at the subnational level. This study zooms in on subnational corruption to examine its influence on the performance outcome of foreign firms, as well as the mitigation strategies by foreign firms through building mutual dependence with local governments. Analyzing data on foreign firms operating in China between 2011 and 2013, we find that subnational corruption level is negatively associated with the financial performance of foreign firms. This negative association is weakened by foreign firms’ export ratio and local experience.