Is certification an effective legitimacy strategy for foreign firms in emerging markets?

Jianhong Zhang, Jiangang Jiang, Niels Noorderhaven*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This study explores the effect of certification on profitability in a transition economy. Obtaining a certification is a strategic legitimacy action that positively affects a firm's profitability, specifically for a foreign firm in a transition economy, where institutions are less developed and stable. However, we argue that certification is particularly effective if legitimacy based on adaptation to local circumstances is weak. An analysis of data from 319 MNE subsidiaries in China over the period 1998-2009 largely supports our hypotheses. Certification is an effective strategic action which improves profitability. However, the strength of this effect is influenced by the level of marketization of the host region, the institutional quality in the home country, the density of the foreign firm community in the host country, the number of years the foreign firm has been in the host country, and the size of the foreign firm. These findings throw light on the role certification can play in helping firms overcome the liability of foreignness in a transition economy.
Original languageEnglish
Pages (from-to)252-267
JournalInternational Business Review
Volume28
Issue number2
DOIs
Publication statusPublished - Apr 2019

Keywords

  • Certification
  • Legitimacy
  • Emerging economies
  • Multinational corporations

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