Influences of country-level factors on corporate governance adherence: an analysis of multinational corporations’ subsidiaries in India

Purpose

This study aims to investigate the influence of institutional factors on corporate governance (CG) compliance within subsidiaries of multinational corporations (MNCs) operating in India, drawing on institutional and legitimacy theories.

Design/methodology/approach

The research approach uses a comparative analysis of CG compliance across MNC subsidiaries in India, focusing on the impact of institutional distance between home and host countries, the quality of national governance and the level of corruption in the host country. It further examines how these factors vary between secondary and tertiary industries and between subsidiaries originating in developed versus developing economies. The authors use a range of robust econometric techniques, including semi-parametric methods of panel data models, generalised method of moments and non-parametric method of panel quantile regression, to conduct a comprehensive analysis.

Findings

This study suggests three principal findings: First, certain institutional mechanisms, namely, national governance quality index (NGQI), institutional distance and host country corruption (CL), exert a substantial impact on corporate governance compliance index (CGCI) levels in MNC subsidiaries. The empirical evidence reveals a positive and significant relationship between CGCI and NGQI and a negative yet significant relationship with CL at a 1% significance level. Second, the influence of these institutional factors varies across different sectors, suggesting a differential susceptibility to institutional impacts between secondary and tertiary industries. Third, the role of institutional factors diverges based on the subsidiary’s country of origin. The data indicates that the compliance behaviours of subsidiaries from developed and developing economies are distinctly influenced, underscoring the pronounced effects of geographical and economic contexts on CG practices.

Originality/value

This research contributes to the existing literature by providing a comprehensive understanding of how institutional factors affect CG compliance in MNC subsidiaries, with a specific focus on India’s emerging economy. It offers original insights into the differential impacts of institutional factors across industries and origin countries, thereby providing practical recommendations for enhancing CG practices within MNC subsidiaries in emerging economies like India.