Legal System Voids and Business-Government Ties in an Emerging Market Environment

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Conference Proceeding

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In this study we develop and test a model investigating how wholly owned foreign subsidiaries (WOFSs) create positive performance outcomes when operating in an emerging market with inherent legal system voids. Our analysis of 181 WOFSs in the Philippines suggests that managerial perceptions of legal system voids are positively related to government relational tie cultivation. Our findings also suggest that the positive relationship between managerial perceptions of legal system voids and government relational tie cultivation is strengthened for WOFSs that are manufacturing intensive. Further, our results suggest that the maintenance of WOFS government relational ties as nonmarket assets mediates the relationship between perceived legal system voids and performance. However, WOFS performance increases with the maintenance of government relational ties up to an inflection point, but then decrease beyond this point as maintenance of government relational ties intensify. Managerial implications and future research directions are offered.