Institutional and organizational antecedents of corporate governance compliance of multinational corporations' subsidiaries : evidence from India

Although the general debate on the topic of corporate governance (CG) has intensified recently, the CG compliance of multinational corporations' (MNCs') subsidiaries in host countries remains unexplored. In India, the CG landscape has evolved and transformed drastically following a series of landmark reforms. While most countries complement their legal and regulatory frameworks with CG codes and principles, India and the United States are two exceptions where laws, regulations, and listing norms entirely constitute the legal CG framework. Addressing the conspicuous void regarding subsidiaries' context in the CG literature and peculiarities of the Indian governance regime, this empirical study aims to investigate the impact of institutional antecedents on the CG compliance of MNCs' subsidiaries. Based on 860 firm-year observations for 2010-2019, this study employs the advanced econometric techniques of fixed-effects, random-effects, and generalized method of moments for multiple regression analysis. The findings of this study are three-fold. First, the variables of national governance quality, the institutional distance between home and host countries, and corruption level of the host country are found to significantly impact the compliance of MNCs' subsidiaries. Second, this study establishes that the effect of these factors varies between secondary and tertiary industries. Third, the findings infer that role of institutional factors differs for subsidiaries originating in advanced and developing economies. Given these empirical findings, regulators and policymakers are recommended to continue with CG reforms to further improve national governance quality, address sector-specific governance issues and introduce measures to maintain the compliance standards of subsidiaries from advanced economies.