The Returns to Nonmarket Strategies During Institutional Transitions: Investor Reactions to Actor and Tie Characteristics

Aline Gatignon (), Marina A. B. Gama () and Rodrigo B. DeMello ()
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Aline Gatignon: Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Marina A. B. Gama: Business Management, Fundação Getúlio Vargas, Escola de Administração de Empresas de São Paulo Itapeva, São Paulo, 01332-000 Brazil
Rodrigo B. DeMello: Management Department, Girard School of Business, Merrimack College, North Andover, Massachusetts 01845

Organization Science, 2023, vol. 34, issue 2, 916-934

Abstract: We explain how investor perceptions of nonmarket strategies’ legitimacy, and thereby value, change during institutional transitions toward greater legal compliance. Indirect influence strategies should be better aligned with the transition and therefore become more legitimate than those associated with direct co-optation and control. Moreover, investors should assess this alignment based on two defining characteristics of firms’ nonmarket strategies, namely, the nonmarket actors and the ties involved. We, therefore, expect investors to value firms’ ties to nongovernmental organizations (NGOs) more than to political actors and ties formed via donations more than board ties. We test our hypotheses in the context of seven police raids that took place in Brazil in 2014; these raids launched “Operation Car Wash,” an anticorruption probe that signaled to investors a shift toward greater legal compliance at that point in time. Ultimately, we find that firms benefited the most when both nonmarket actors and ties were aligned with the institutional transition (i.e., NGO donations), and they suffered the most when both characteristics were misaligned (i.e., political board ties). Our findings integrate nonmarket strategies’ political and social facets by showing how actor and tie characteristics jointly explain their success or failure. They also contribute to explaining which firms will be better positioned to weather institutional transitions between legal capture and legal compliance.

Keywords: nonmarket/political environment; social responsibility; institutional theory; Brazil (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:34:y:2023:i:2:p:916-934

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