When in Rome, do as the Romans do: Dealing with Corruption after Entry

Research on corruption and FDI has extensively studied the influence of host country corruption, and the distance between home and host corruption (corruption distance) on entry decisions and entry modes, but overlooked how multinational enterprises organize after entry. To advance this research we investigate how corruption distance influences foreign subsidiary autonomy. Drawing on the institutional perspective, our theoretical framework proposes and our empirical analysis confirms that majority-owned foreign subsidiaries enjoy greater autonomy for high levels of corruption distance to gain local legitimacy and overcome the liability of foreignness. However, the ultimate influence of the external isomorphic pressure associated to corruption distance on subsidiary autonomy critically depends on the type of internal isomorphic pressure considered. The tension between internal and external isomorphism is stronger when the former relies on HQ-subsidiary socialization. Instead, the internal isomorphic pressure based on HQ-subsidiary dependence strengths the external isomorphic pressure associated to corruption distance.