The Effect of Sociopolitical Legitimacy on Foreign Firm Political Strategy
53 Pages Posted: 4 Aug 2018 Last revised: 12 Oct 2021
Date Written: October 13, 2021
This paper investigates how the perceived legitimacy of foreign firms in the eyes of host-country stakeholders determines their host-country political strategies. Building on international business research, we propose that home-country political systems influence host-country legitimacy assessments of foreign firms. In turn, a foreign firm’s sociopolitical legitimacy, driven in part by home-country characteristics, will influence whether it lobbies through in-house lobbyists or outsources the activity to lobbying firms to maximize the effectiveness of its political activities. Using a novel instrumental variable approach for identification and a panel dataset of lobbying activities of foreign firms in the United States, the results support our arguments that a foreign MNE is less likely to use in-house lobbyists if its legitimacy is negatively impacted by home-country characteristics. Our study contributes to the international business and nonmarket strategy literatures.
Keywords: Sociopolitical legitimacy, political strategy, nonmarket strategy
JEL Classification: M10
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