The Institutional Dilemma of Globalized Firms Open Access

Abstract

This project examines the risks and opportunities arising from the institutional environments that multinational enterprises (MNEs) are embedded in. It has two main components. In the first one, I examine how MNEs establish various forms of connections with state actors as a strategy to mitigate political risks and engage in rent-seeking activities. In the second part, I study the impact of the emerging legal regime of transnational anti-corruption enforcement. I show how transnational law enforcement affects the business performance of firms exposed to diverse and often contradictory institutional requirements. As a whole, the dissertation highlights the "double jeopardy" problem faced by globalized firms that operate across jurisdictional boundaries. In countries where judicial constraints over government misconduct is weak, political arrangements between the state and the business provide the latter with cronyist rent-sharing opportunities and a necessary alternative rights protection mechanism. Meanwhile, globalized firms with exposure to developed jurisdictions governed by strong legal institutions, such as that of the U.S., face the risk of transnational enforcement of strong corporate integrity regulations, such as anti-bribery laws. In this project, I argue that transnational anti-corruption enforcement disrupts the informal arrangements made between globally-connected firms and local government officials, especially in markets with high regulatory barriers and expropriation risks. An implication of such institutional dilemma faced by MNEs is that they need to weigh the resources and constraints provided by one institutional environment against those provided under other institutional settings. Globalized firms may need to make trade-offs and adjust their exposures to and liabilities from divergent institutional requirements and expectations.

Table of Contents

1 Introduction 1

1.1 The Theoretical and Empirical Background . . . . . . . . . . . . . . . . . . . 4

1.2 The Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.2.1 Cronyist Relationship Between MNEs and Host Officials . . . . . . . 11

1.2.2 Transnational Anti-corruption Deterrence . . . . . . . . . . . . . . . . 14

1.2.3 Main Arguments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.2.4 Implications and Contributions . . . . . . . . . . . . . . . . . . . . . . 17

1.3 Outline of the Dissertation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2 The Existing Literature on Political Risks 21

2.1 Political Risks as Disincentives for Investment . . . . . . . . . . . . . . . . . 21

2.2 Informal Risk-Mitigation Strategies . . . . . . . . . . . . . . . . . . . . . . . . 23

2.3 Transnational Anti-corruption Legal Regimes . . . . . . . . . . . . . . . . . . 25

2.3.1 The Background of the FCPA . . . . . . . . . . . . . . . . . . . . . . . 26

2.3.2 The Reach of FCPA Enforcement . . . . . . . . . . . . . . . . . . . . . 28

2.3.3 The Institutional Dilemma Caused by FCPA Enforcement . . . . . . 31

3 Litigation, Institutional Capture, and Rent-seeking 35

3.1 Institutions and Investor Rights Protection . . . . . . . . . . . . . . . . . . . 38

3.2 MNEs, State Capture, and Litigation Outcomes . . . . . . . . . . . . . . . . . 40

3.3 A New Litigation Dataset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3.4 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

3.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

3.6 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

4 The Transnational Anti-corruption Legal Regime 74

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4.2 Theory and Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

4.3 Data and Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

4.3.1 Dependent variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

4.3.2 Independent variables . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

4.3.3 Control variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

4.3.4 Econometric approach . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

4.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

4.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

4.6 Tests of Other Theoretical Implications . . . . . . . . . . . . . . . . . . . . . . 107

4.7 General Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

5 Judicial Spillover Effects on a Cronyist Economy 113

5.1 State-dominated Economy and Cronyism . . . . . . . . . . . . . . . . . . . . 113

5.2 The Industrial Policy and Foreign Investment Restrictions . . . . . . . . . . 115

5.3 External Judicial Intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

5.4 The Empirical Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

5.5 Results for Hypothesis 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

5.6 Results for Hypothesis 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

5.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

5.8 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

6 Case Studies 136

6.1 Informal Rent-seeking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

6.2 Formal Rent-seeking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

6.3 Informal Capture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

6.4 Formal Capture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

6.5 The Risks and Deterrence of the FCPA . . . . . . . . . . . . . . . . . . . . . . 146

6.5.1 The Risks of FCPA Exposure . . . . . . . . . . . . . . . . . . . . . . . 146

6.5.2 The Deterrence Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

7 Conclusion 154

7.1 Core Findings and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . 154

7.2 Changing Patterns of Global Investments . . . . . . . . . . . . . . . . . . . . 156

7.3 Transnational Regulation and Development . . . . . . . . . . . . . . . . . . . 158

7.4 Policy Preferences of Firms and States . . . . . . . . . . . . . . . . . . . . . . 160

7.5 Business Ethics in Corporate Political Strategies . . . . . . . . . . . . . . . . 161

7.6 Generalizability of the Findings . . . . . . . . . . . . . . . . . . . . . . . . . . 163

7.7 Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

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School	Laney Graduate School
Department	Political Science
Degree	Ph.D.
Submission	Dissertation
Language	English
Research Field	Political Science, General Political Science, International Relations Political Science, International Law and Relations
Keyword	multinational enterprises transnational corruption the rule of law government-business relations
Committee Chair / Thesis Advisor	Eric Reinhardt, Emory University
Committee Members	Miguel Rueda, Emory University Jennifer Gandhi, Emory University Alvaro Cuervo-Cazurra, Northeastern University Jeffrey Staton, Emory University

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