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.