This study investigates the impact of political affinity between home and host countries on multinational enterprises’ (MNEs) foreign investment strategies, focusing on the use of local subsidiaries in cross-border acquisitions (CBAs) and international joint ventures (IJVs). Drawing on institutional and resource dependence theories, we propose a legitimacy-control framework to analyze how political affinity reshapes the headquarters-subsidiary relationship. High political affinity reduces legitimacy pressures, enabling direct headquarters-led investments in CBAs while enhancing strategic control. Conversely, low political affinity necessitates greater involvement of local subsidiaries to address legitimacy gaps, particularly in politically sensitive markets. Using a dataset of CBAs and IJVs conducted by U.S. public firms between 1999 and 2021, we find that higher political affinity reduces subsidiary involvement in CBAs but increases it in IJVs.
