The Patterning and Conduct of Multinational Companies’ Non-Market Strategy (NMS) in the United Kingdom and Implications for their Performance and Tax Aggressive Behaviour

Abstract

Hillman and Hitt’s (1999) theoretical framework is used to explore the underlying mechanisms through which non-market strategies (NMS) affect firm performance and tax aggressive behaviour. Multiple studies investigating the benefits of NMS unfortunately continue to generate mixed results despite NMS becoming increasingly common (especially amongst multinational corporations) due to widespread agreement that collaboration between firms and governments is required to achieve smarter policies for sustainable economic growth. The United Kingdom (UK) Open Government Dataset is used to identify 480 corporations’ political encounters with the UK government between 2012 to 2019. The mean of political encounters (3.04) is operationalised to construct a dummy variable (FPA‒Firms Political Approach) to categorise firms’ political approach as relational or transactional and General Least Square – Random Effect (GLS – RE) is utilised to conduct regression and Probit models. The results demonstrate that only the transactional approach yields an increase in firms’ fortunes and only if it constitutes a unilateral or hybridised (unilateral + collaborative) mode of participation. The relational approach, however, is strongly and positively correlated with tax aggressiveness where ‘insider status’ with government is a prerequisite. This relationship is strengthened by the moderating effect of firms’ age, making older firms conducting a relational approach more inclined toward tax aggressiveness. But firms with considerable numbers of intangibles will also tend towards the transactional approach when prosecuting tax aggressiveness. The research focuses on agency theory, Resource-based View and institutional perspectives to reveal a clear underlying mechanism explaining how firms’ performance is impacted when conducting NMS and the approach most conducive to practising tax aggressiveness. More widely, the research shows that different firms need to adopt different strategies according to firm-specific factors and whatever it is they want to achieve. There is no ‘one size fits all’ mode of engagement (with government) that is automatically superior — both transactional and relational approaches are capable of generating benefits under the right circumstances and any simple valorisation of more corporatist approaches is arguably misplaced.