Abstract:
The rise of international trade, and the concurrent drive for ethical business practices worldwide, have placed a spot light on the interaction of multinational companies and their operating environments. Resultantly, management of multinational companies are under pressure to devise business practices, which harmonise subsidiary development and ethical business conduct, in countries with weak state transparency. In light of ethical challenges posed by developing countries, this study aimed to explore, using the lens of institutional theory, whether multinational companies uphold strong levels of corporate governance, for their subsidiaries operating therein. The consequential impact on financial performance, and implications for global governance practices of multinational companies, were further explored.
A mixed research methodology was applied, using a questionnaire with a large quantitative, and small qualitative aspect. Quantitative questions focused on existence and effectiveness of corporate governance, while qualitative questions explored institutional and business interactions in developing and developed countries. An American multinational companyÕs subsidiaries in developed and developing countries, were purposively selected, and data collected from 203 respondents was analysed.
The study uncovered the interplay between internal governance of multinational companies (micro-level) and country governance (macro-level), and the impact on financial performance. While strong levels of corporate governance were found to be applied in developing countries, the relationship to financial performance was insignificant. However, a significant relationship between an environmentÕs state transparency and financial performance existed. Endogenous factors, such as Leadership accountability, incorporating stakeholder governance, were found to require adaptation to institutional characteristics in the environment, for subsidiary legitimation.
The findings therefore contest the management of multinational companies, on applying standard corporate governance practices globally. Secondly, the study extends existing literature on institutional theory, ethical pressures, and political risk in developing countries, including adaptive practices required from multinational companies. Lastly, the findings contribute to the growing body of literature, around the impact of endogenous factors on the relationship between corporate governance and financial performance, which future academics can build on.
