Social Innovation and the Financial Risk of EMNCs - The Contingent Role of Institutional Legitimacy

This paper presents an examination ofthe influence of social innovation on the financial risk of emerging economymultinational corporations (EMNCs). Traditionally, research has focussed on Western MNCs’and their financial performanceimplications. However, the growing involvement of EMNCs in social innovation—albeit in environments characterized by institutional voids—and its effects on financial risknecessitate an in-depthexamination. Drawing on stakeholdertheory, we exploredhowEMNCs balance their social innovation initiatives with financial risks. To this end, wefirst examinedhowsocial innovation reducesthefinancial riskof EMNCs. Second, we examinedthe association betweenexcessive social innovationand suchrisk. In addition, borrowing insights from institutional theory, we assessedthe role played by institutional legitimacy in this process, acknowledging institutional legitimacy’spotential to mitigate the financial risks associated with social innovation in emerging economies.We testedour hypotheses based on datadrawnfrom 90 EMNCs based in14 emerging economies,applying a panel regression model with robust standard errors and a rigorous robustness propensity score matching test. Our findings show that social innovation reduces EMNC financial risk andchallenge assertions maderegardingthe potential negative implications of excessive social innovationon financial risk. Our results also demonstrate the intricatemoderating effects of institutional legitimacy in balancing social innovation, excessive social innovation,and EMNCfinancial risk. Finally, weproffer criticalimplications for managers and policymakers in emerging economies.