Do third-party certifications work in a weak institutional environment?

Anna Lamin and Grigorios Livanis

Journal of International Management, 2020, vol. 26, issue 2

Abstract: We investigate whether third-party certification may negatively affect firm performance in a weak institutional environment. Firms in weak institutional environments often obtain certifications to appeal to foreign audiences. But these audiences hold negative evaluations of firms from weak institutional settings, judging them as being of poor quality due to their geographic origin. We argue that these negative evaluations greatly diminish the informational value of certifications, such that the costs of certification exceed revenue gains causing performance decline. We also examine whether industry-level evaluations can challenge country-level ones. Focusing on industry legitimation, we argue that this increases the salience of the industry over the institutional context. Audiences see the industry first, not the weak institutional environment. Thus, third-party certifications can become a basis for differentiating among firms and thereby help improve firm performance as industry legitimation increases. We use the first decade post-liberalization of the Indian software industry, 1992–2003, to test our hypotheses. Based on a sample of 792 firms, we find support for our arguments suggesting that in weak institutional environments certification alone is not enough for firms targeting foreign audiences to overcome the stigma of their origins; it needs to be accompanied by positive industry-level processes.

Keywords: Third-party certifications; Industry legitimacy; Weak institutional environment; Stereotype bias; Country of origin; ISO 9000; India; Software industry (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.intman.2020.100742

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