Reality or Illusion? The Efficacy of Non‐market Strategy in Institutional Risk Reduction

Abstract

Non‐market strategy researchers have postulated that political and social strategies reduce the exposure of firms to risk, but those arguments have received little empirical attention. In this paper, we integrate social capital and institutional theories to examine the efficacy of managerial political ties (MPTs) and corporate social responsibility (CSR) in institutional risk reduction. Using survey data from 179 firms in Ghana we find that, whereas CSR reduces institutional risk exposure, MPTs do not. We also find that the effect of MPTs on risk exposure is moderated by public affairs functions. Contrary to extant literature, we do not find evidence of complementarity between MPTs and CSR. Altogether, the findings not only show that the proposed efficacy of MPTs in risk reduction is illusive, but they also signal the need for scrutinizing the harmony between non‐market political and social strategies.

Non‐market Social and Political Strategies – New Integrative Approaches and Interdisciplinary Borrowings

“…In contrast, the paper by Liedong, Mellahi and Rajwani (2017) in this special issue finds no evidence for complementarity. The authors found that CSR helps to lower perceptions of risk exposure but is ineffective when combined with managerial political ties (MPTs), thereby 'suggesting the existence of a form of "cannibalization" whereby MPTs erode the gains of CSR'.…”

“…The papers by Liedong, Mellahi and Rajwani (2017) and Ahammad, Tarba, Frynas and Scola (2017) provide some novel insights on the integration of social and political strategies and the integration of market and non-market strategies. But they have practical implications too.…”

Balancing social and political strategies in emerging markets: Evidence from India

“…For example, it can achieve favorable legislative decisions (Lord, ), generate higher market capitalization (Hillman, ), improve the firm value in stock markets (Goldman, Rocholl, & So, ), lead to enhanced financial performance (Shaffer, Quasney, & Grimm, ), and decrease business risk (Puck et al, ). Yet, there is limited work exploring the links between sociopolitical strategies and their influence on firm performance in EMs (e.g., Frynas & Stephens, ; Hadani & Coombes, ; Leidong et al, ).…”

“…The current lack of integration of political and social strategies research means that there is limited understanding of complementary or substitution effects between the political and social strategies (cf. Leidong, Rajwani, & Mellahi, 2017;Mellahi et al, 2016). In the context of EMs, extant literature has examined the different types of political and social strategies used by foreign companies in those markets, mainly focusing on the determinants of such strategies rather than on the outcomes (Hillman & Hitt, 1999;Hillman, Keim, & Schuler, 2004;Meznar & Nigh, 1995;Oliver & Holzinger, 2008).…”

“…Frynas et al, 2017;Mellahi et al, 2016), however, majority of the work has been conducted in developed markets and scholars have | 57 RAO-NICHOLSON et al called for more research in the context of EMs where formal institutions are still evolving (e.g., Doh, Lawton, & Rajwani, 2012;Hadani & Coombes, 2015;Jamali, Karam, Yin, & Soundararajan, 2017;Lawton et al, 2013). Besides this, studies are also rare which have simultaneously examined the political and social strategies undertaken by MNEs and domestic firms and the outcome of such strategies in EMs context (e.g., Liedong et al, 2017). Thus, it is imperative to investigate both foreign and domestic firms to develop a fine-grained view of their chosen political and social strategies and better understand whether these strategies have a different impact on the performance of foreign vis-a-vis domestic firms (Frynas & Stephens, 2015;Scherer, Palazzo, & Matten, 2014).…”