Disclosure practices of foreign and domestic firms in Australia Zahid Riaz a,b , Sangeeta Ray c , Pradeep Kanta Ray b , Vikas Kumar c, * a Faculty of Business Administration, Lahore School of Economics, Lahore, Pakistan b School of Management, UNSW School of Business, University of New South Wales, Sydney 2052, Australia c Discipline of International Business, University of Sydney Business School, University of Sydney, Sydney, Australia 1. Introduction In a rapidly globalising world economy, multinational corpora- tions (MNCs) straddle a great variety of institutional contexts espousing different approaches to corporate governance and transparency (Aguilera & Jackson, 2010; Bushman, Piotroski, & Smith, 2004; Bushman & Smith, 2001; Doh, Husted, Matten, & Santoro, 2010; Hope, 2003a, 2003b; Kostova, Roth, & Dacin, 2008; Salomon & Wu, 2012). International standards for governance and reporting are not well established and enforcement occurs largely by stock exchanges and/or national jurisdictions. While the MNC- parent entity is subject to its home country’s corporate governance laws and codes, each affiliate of the MNC is typically a legal entity in its host country (Windsor, 2009). Furthermore, the historical experience of MNCs has not only been shaped by institutions of their home country but also by formal and informal institutions in several other countries that hosted them. Even as national standards and state regulation of a country endeavour to shape governance practices, self-regulatory aspects shaped by informal institutions, particularly norms and values of professional bodies can become enduring parameters for MNCs. Also, MNCs have complex internal environments due to dualities in reporting structures leading towards heightened agency problems (Windsor, 2009; Zaheer, 1995). All of this further complicates the foreign operations of an MNC. MNCs’ governance structures and practices may therefore vary greatly across country subsidiaries due to different institutional environments (Heidenreich, 2012). Such a duality raises an important question: how well do MNCs respond to institutional pressures in a host country while MNCs straddle a global economy? We examine if the conflicting demands of maintaining internal consistency versus gaining external legitimacy in the host environment leads MNCs to behave differently than local enterprises with respect to information disclosure to stakeholders in a host environment. As per Aguilera and Jackson (2010: 494) there is dearth of research regarding corporate governance issues within the multinational corporations. Doh et al. (2010) have argued that the fields of international business and business ethics have little influence on each other and Journal of World Business xxx (2015) xxx–xxx * Corresponding author at: Room 437, H10-Storie Dixson Wing, The University of Sydney, NSW 2006, Australia. E-mail addresses: zahidriaz@lahoreschool.edu.pk (Z. Riaz), s.ray@econ.usyd.edu.au (S. Ray), pray@unsw.edu.au (P.K. Ray), vikas.kumar@sydney.edu.au (V. Kumar). A R T I C L E I N F O Keywords: Corporate governance MNC subsidiaries Institutional duality Australia A B S T R A C T Even while straddling the global economy, multinational corporations (MNCs) need to adapt to different institutional regimes in host country markets in which they operate. This research examines the extent to which MNC-subsidiaries are embedded in their local institutional context in terms of how they pursue local legitimacy and respond to local laws and standards of disclosure of executive remuneration in the host country. Drawing attention to key socio-economic influences on foreign MNC-subsidiaries, we examine whether global MNCs respond to disclosure requirements in a host country and address a higher level of information asymmetry associated with multinational operations. The analysis of disclosure levels of MNC-subsidiaries vis-a ` -vis domestic firms suggests that, other things being equal, MNCs are more responsive to increased disclosure requirements than their local counterparts if they have substantial economic interactions with domestic product-markets. These results demonstrate that MNCs are willing to incur the marginal cost of increasing disclosure if commensurate benefits justify it. Another interesting finding relates to the negative association between legal system type (common law) of MNC’s parent country and disclosure level of director and executive remuneration. It highlights that MNC-subsidiaries with higher regulatory (institutional) distance disclose better level of remuneration to gain external legitimacy and reduce their liability of foreignness. ß 2015 Elsevier Inc. All rights reserved. G Model WORBUS-734; No. of Pages 12 Please cite this article in press as: Riaz, Z., et al. Disclosure practices of foreign and domestic firms in Australia. Journal of World Business (2015), http://dx.doi.org/10.1016/j.jwb.2015.04.001 Contents lists available at ScienceDirect Journal of World Business jo u r nal h o mep age: w ww.els evier .co m/lo c ate/jwb http://dx.doi.org/10.1016/j.jwb.2015.04.001 1090-9516/ß 2015 Elsevier Inc. All rights reserved.