An increasing body of research focuses on the role of subnational institutions in influencing multinational enterprises (MNEs) and their subsidiaries’ local engagement in host countries. Despite valuable insights, these institutions are often perceived as static and independent. Our study investigates the impact of subnational institutional linkages, such as sister city relationships, on subsidiaries’ local corporate social responsibility (CSR) engagement. We further explore how detrimental and declining bilateral political relations serve as contingencies that affect the relationship between a subsidiary’s sister city origin and its local CSR engagement. Contextualized in China, our study draws on CSR data from foreign subsidiaries between 2010 and 2020, along with information on their home city origin to identify sister city relationships. Our findings indicate that subsidiaries with sister city origins engage more in local CSR, illustrating the role of institutionalized compassion in sister city relationships. While detrimental bilateral relations weaken this relationship, declining bilateral relations strengthen it. Our study contributes to international business literature by illuminating the interplay between subnational institutions and national-level political dynamics in shaping subsidiaries’ local CSR engagement. It emphasizes the importance of cultural and diplomatic ties, as well as national politics, in influencing CSR practices.
