Investment Climate Constraints as Determinants of Political Tie Intensity in Emerging Countries: Evidence from Foreign Firms in Ghana

Abstract

Foreign firms in emerging countries face various institutionally-driven challenges. Nonmarket strategy scholars argue that these challenges incite corporate political activity. Consequently, researchers have explored the influence of institutional factors on the choice and extent of political strategies. However, not much is known about how investment climate constraints affect the political ties of foreign firms in contexts other than US, Europe and Asia. Drawing on institutional theory, we propose that firms' exposure to administrative and control constraints as well as the presence of public affairs (PA) functions will lead to political tie intensification. We test our propositions using data from foreign firms operating in Ghana, and find that whereas control constraints strengthen political ties, administrative constraints weaken these ties. The findings also suggest that PA functions and political ties can be substitutes, not complements, depending on the institutional contingencies. Altogether, our study enhances knowledge and understanding of how institutional environments and organizational structures affect the political behaviour of foreign firms in emerging countries.

Responsible Firm Behaviour in Political Markets: Judging the Ethicality of Corporate Political Activity in Weak Institutional Environments

“…Firms are therefore highly dependent on the policies and actions of politicians for conducive investment climates (Lester et al 2008;Hillman et al 2009). This is particularly true in developing countries where governments direct the allocation of critical resources (Peng and Luo 2000;Guo et al 2014) and wield significant authority and power amid weak checks and balances to arbitrarily formulate or apply regulations (Henisz 2004;Liedong and Frynas 2017;White et al 2015). This dependency motivates firms to create linkages to politicians or deploy actions and efforts to influence government policy in their favour (Getz 1997;Hillman et al 2004).…”

“…While I acknowledge the usefulness of these strategies, I also note that they do not have universal application. For instance, the information strategy is rarely used in developing countries due to lack of supporting institutional structures (Liedong and Frynas 2017).…”

“…While CPA exists in Ghana, there is little research on the practice. So far, only a few studies have empirically studied the interactions between businesses and politicians in Ghana (Liedong and Rajwani 2018;Liedong and Frynas 2017;). These studies focus on managerial political ties-i.e.…”

“…This has led to a surge in corporate political activity (hereafter CPA), which refers to corporate efforts to influence government policy in favourable ways (Hillman et al 2004). CPA research has mainly focused on topics such as the antecedents of political strategies (Hillman and Wan 2005;Liedong and Frynas 2017), the nature and types of political activity (Barron 2011;Decker 2011) and the outcomes of political activity (e.g. Hadani and Schuler 2013).…”

“…Second, business-government relations positively affect Ghana's socio-economic development through their impact on public-private partnerships, policy formulation and capacity building (Amankwah-Amoah et al 2018). However, Ghana suffers institutional weaknesses (Acquaah 2007;, which gives rise to systemic corruption (van den Bersselaar and Decker 2011;Liedong and Frynas 2017) and poor corporate governance practices within politically active firms (Liedong and Rajwani 2018). These problems curtail or negate the promise of CPA and call for ethical business-government relations, which can be achieved by firstly understanding how managers evaluate the ethicality of their political engagements.…”