Political hazards and entry modes of Chinese investments in Africa

Africa has achieved the fastest growth rate of inward foreign direct investment (FDI) recently. Yet heightened political hazards present substantial challenges to foreign firms in Africa. This study examines the entry strategies that firms may take to mitigate such hazards by exploring the relationship between political hazards and entry mode choices in Africa. We further consider how an investing firm’s host country experience and foreign aid provided by its home country government to host countries in Africa can influence this relationship. In a sample of listed Chinese firms’ investments in Africa from 2000 to 2014, we find that Chinese firms tend to use the joint venture mode when political hazards are high in an African country. This relationship is weakened when they accumulate host country experience and when the Chinese government’s foreign aid to an African country increases. Our findings point to firm-level strategies to mitigate political hazards as well as instruments available to home country governments to help their multinational firms operating in host countries characterized by unstable political environments.     

Venture capital in China: A view from Europe

This article provides commentary on the analysis of venture capital in China by Ahlstrom, Bruton, and Yeh (Venture capital in China: Past, present, and future. Asia Pacific Journal of Management, 2007). The article considers issues relating to the scope of venture capital and private equity, the nature of venture capital and private equity organizations, the life-cycle process of VC investing, internationalization, and foreign venture capital firms. The paper identifies areas for future research and compares the Chinese VC context with those in Western Europe and Central and Eastern Europe.

Behind ownership decision of Chinese outward FDI: Resources and institutions

This paper examines ownership decision of Chinese outward foreign direct investment (FDI) with a focus on the choice between a wholly owned subsidiary and a joint venture entry mode. Based on literature review and findings from our case study of ten Chinese outward investing firms, we develop a conceptual framework that integrates the resource-based and institution-based views of international business strategy. The framework reflects special characteristics of Chinese outward FDI. On the resource side, Chinese outward FDI is both asset exploiting and asset augmenting, and accordingly, both transaction costs and strategic intents have an impact on the FDI ownership decision of Chinese firms. On the institution side, when investing overseas, Chinese firms adjust their entry strategies to attain regulative and normative institutional legitimacy in host countries. Meanwhile, they also need to comply with the rules set by the Chinese government, which provide incentives to and impose restrictions on Chinese firms’ FDI ownership decisions.     

风险管理：对中国企业“走出去”的几点思考

中国从一个资本纯流入大国正迅速转变成一个资本投资大国。近10年来,中国大部分对外投资是通过央企对外并购实现的,并购多集中在石油矿产等能源与自然资源领域。中国企业＂走出去＂是必然的选择,风险再大也要坚定前行,但必须头脑清醒,战略明确,知己知彼,对自身的优劣和国内国际大环境有清醒的认识。中国企业＂走出去＂的前景虽然广阔,但亦荆棘密布,社会政治、货币汇率、自然灾害、企业投资决策以及经营管理等诸多风险如影相随。面对这些风险,即便是具有丰富国际运营经验的西方跨国公司也须如履薄冰。中国企业＂走出去＂还必须对文化整合、尊重企业自身发展规律和融入深刻变化的世界格局给予充分的重视,因为它们是能否成功的更深层次的因素。中国企业＂走出去＂,不仅应该让中国得益,也应该让世界得益,只有让所有相关方得益的项目才是风险最小的项目。一个企业,不论多强大,都必须谋求合作多赢,必须有所畏惧、有所节制,才能走得长远。     

Calls on high-technology: Japanese exploration of venture capital investments in the United States

The strategic logic of Japanese high-technology venture capital investment reveals the existence of an implicit call option, or ‘shadow option’, on new technology. This option is exercised by further investment in product development, manufacturing and distribution. The process is described with reference to a comparative study of Japanese and U.S. venture capital firms. Similarities and differences between the two groups are reported, and a conceptual model of Japanese option strategy is formulated. The implications for our understanding of Japanese strategy and for strategic management theory are discussed.     

Commercial exploitation of new technologies arising from university research: start-ups and markets for technology

The creation of start-up firms is an important method of commercializing new technologies arising from R&D at universities and other research institutions. Most research into start-ups presumes that these firms develop products or services. However, start-ups may operate through markets for technology by selling or licensing rights to use their technology to other firms – typically established firms – who develop and sell new products or services based on the technology. In this study of 57 public start-up firms created to commercialize the results of university research, we find evidence that (1) operating through markets for technology is a common approach to commercialization, (2) start-ups that operate in markets for technology can be effectively distinguished in practice from start-ups operating through product markets, and (3) there are substantive differences in the business activities of firms depending on whether they operate through product markets or markets for technology.     

Do Foreign and Domestic Venture Capital Firms Differ in Their Monitoring of Investees?

This paper addresses an important omission in the venture capital literature by comparing the monitoring behavior of foreign and domestic venture capital firms (VCs). Evidence from 31 VCs in India (84% response) shows foreign VCs were significantly more likely than domestic VCs to be involved at the strategic level while domestic VCs were significantly more active at the operational level. Foreign VCs placed significantly more emphasis on restrictions on additional borrowings. Domestic VCs placed significantly more emphasis on specifying certain accounting policies while foreign VCs placed significantly more emphasis on monthly management accounts. Domestic VCs place significantly more emphasis on industry specialist board membership.     

The venture capital entry model on game options with jump-diffusion process

This paper aims to apply game options to construct the optimal decision-making and management tool for venture capital (VC) firms. This model emphasizes the inferences with game options on the market structures formed by different competition and investment strategies of the two VC firms to reflect the investment returns. These market structures are classified into an entry-deterred game (specific monopoly), a leader's dominated strategies (duopoly), and simultaneous investment. It is considered how to select investment timing to avoid any potential competitive threats in order to provide the optimal expected threshold values for the investment decisions of VC firms.     

风险企业薪酬策略研究

本文讨论了基于人员流动研究风险企业薪酬激励的重要性，通过对Paul Oyer的薪酬策略数学模型的分析，讨论了该模型的缺陷并进行了改进，探讨了风险企业的所有者如何选择最优的薪酬策略模式，在保证对员工进行有效的激励的前提下，达到所有者权益最大化的目标。     

Which ties matter when? the contingent effects of interorganizational partnerships on IPO success

This paper investigates the contingent value of interorganizational relationships at the time of a young firm's initial public offering (IPO). We compare the signaling value to young firms of having ties with two types of interorganizational partnerships: endorsement relationships such as those with venture capital firms and investment banks, and strategic alliance partnerships. We propose that, under different equity market conditions, potential investors in an issuing firm attend to different types of uncertainty; attention to these different types of uncertainty affects investors' perceptions of the relative value of a young firm's different kinds of endorsements and partnerships and, hence, IPO success. Results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to IPO success during cold markets, while ties to prominent investment banks are particularly beneficial to IPO success during hot markets; a firm's strategic alliances with major pharmaceutical/health care firms did not have such contingent effects. Implications for understanding the contingent value of interorganizational ties are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder‐CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment. Copyright © 2012 John Wiley & Sons, Ltd.     

Patenting and the early‐stage high‐technology investor: evidence from the field

We discuss the importance of patenting to the venture capital investor in high‐technology firms. While literature suggests that patenting will have an impact on the nature and level of investment, the investors themselves are keen to suggest otherwise. We investigate this issue by the use of new primary‐source empirical data, gathered by fieldwork methods. Our results help explain a link between the existence of patenting and the level of investment made. We further support our analysis with illuminating quotes from investors currently active in the field.     

Green finance and outward foreign direct investment: evidence from a quasi-natural experiment of green insurance in China

Institutions have an important impact on corporate outward foreign direct investment, while differences in environmental regulations play a significant role in international capital flows based on the pollution haven hypothesis (PHH). This study examines the effect of green insurance, an institutional innovation tool designed to diversify and transfer environmental risks, on the decisions of firms regarding their overseas investment. Using a quasi-natural experiment of green insurance in 2007, this paper investigates the relationship between green insurance and corporate outward foreign direct investment and then further examines the effects of marketization and the Belt and Road Initiative (BRI) on this relationship. The results show that green insurance significantly reduces corporate outward foreign direct investment. Furthermore, the effect of green insurance on corporate outward foreign direct investment is stronger in regions with higher marketization and is weaker when investing in BRI countries. These findings suggest that green insurance is playing a gradually important role in influencing corporate overseas investment decisions. This study contributes to the research on the effects of institutions on corporate outward foreign direct investment while also broadening the research perspective of the PHH.

     

Firm non‐market capabilities and the effect of supranational institutional safeguards on the location choice of international investments

Research Summary : We investigate the extent to which firms rely on supranational institutional safeguards versus their non‐market capabilities to offset the risks of investing abroad. We argue that firms with non‐market capabilities are insensitive to supranational institutional safeguards when choosing the location of their international investments. We show that supranational agreements between an investor's home and host nation, operationalized as bilateral investment treaties (BITs), increase the likelihood of investment, but there is substantial firm heterogeneity with respect to this relationship. Firms with various forms of non‐market capabilities are not sensitive to BITs, whereas other firms are more likely to invest under BITs. We advance the understanding of how firm non‐market capabilities can substitute for supranational institutional arrangements in addressing risks associated with host country institutional weaknesses. Managerial Summary : The risk of expropriation is one of the main concerns companies have when investing abroad. Because of this, many countries implement bilateral investment treaties (BITs) to safeguard foreign investments, alleviate foreign investor concerns, and promote investments. We show that only those companies without political competence or political connections favor countries with BITs when choosing where to invest. Companies with political competence or political connections, on the other hand, ignore BITs and apparently rely on their ability to influence governments whenever their foreign investments face expropriation threats. As a result, politically connected or competent companies can enter markets most of their competitors lacking these capabilities shy away from. They can, therefore, do business in environments in which they face less competition.     

Do VCs matter? the importance of owners on performance variance in start‐up firms

Adding to the corporate effect literature, we study the effect of owners on firm performance in a new context, that of venture capital firms (VCs) and the start‐up firms in which they invest. After discussing the effect that VC ownership can have on start‐ups, we estimate that start‐up‐specific, owner (VC), and year effects account for significant variance in performance (26.3 percent, 11.2 percent and 3.7 percent, respectively). The effects of industry and investment stage are not statistically different from zero. We also provide an analysis that separates the owner effect into two components: a selection component—which impacts investment—and a management component—which explains significant variance in performance. By examining the owner effect in a different institutionalized form of governance—that of the start‐up and its relationship to VC owners—our study also contributes to an understanding of the ‘ownership’ effect in the strategy literature more generally. Copyright © 2008 John Wiley & Sons, Ltd.     

The extent and nature of heterogeneity of venture capital selection behaviour in new technology‐based firms

The success of technology transfer depends in part on new technology‐based firms (NTBFs) accessing venture capital (VC). Yet, little is known about venture capitalists' selection processes in this context. We examine the heterogeneity in the selection behaviour of VCs using a unique hand‐collected dataset comprising 68 European early‐stage high‐tech VC investors. We follow an inductive research design and use a conjoint analysis to decompose the investment decisions of VC investors. We identify three different clusters of VC investors: those who focus on technology (technology investors), those who focus on finance (financial investors) and those who focus on human capital (people investors). Technology investors attach more importance to the appropriability of the technology and contact with the entrepreneur than the other groups of VCs. For people investors, the human factors such as leadership capacities of the entrepreneur and the quality of the team are most important. Financial investors make their investment decision based on a limited set of factors such as ROI, growth and team completeness. Our results have important implications for NTBFs, venture capitalists and universities involved in technology transfer through spin‐off companies.     

Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists

This paper investigates the effect of compensation of corporate personnel on their investment in new technologies. We focus on a specific corporate activity, namely corporate venture capital (CVC), describing minority equity investment by established‐firms in entrepreneurial ventures. The setting offers an opportunity to compare corporate investors to investment experts, the independent venture capitalists (IVCs). On average, we observe a performance gap between corporate investors and their independent counterparts. Interestingly, the performance gap is sensitive to CVCs' compensation scheme: it is the largest when CVC personnel are awarded performance pay. Not only do we study the association between incentives and performance but we also document a direct relationship between incentives and the actions managers undertake. For example, we observe disparity between the number of participants in venture capital syndicates that involve a corporate investor, and those that consist solely of IVCs. The disparity shrinks substantially, however, for a subset of CVCs that compensate their personnel using performance pay. We find a parallel pattern when analyzing the relationship between compensation and another investment practice, staging of investment. To conclude, the paper investigates the three elements of the principal‐agent framework, thus providing direct evidence that compensation schemes (incentives) shape investment practices (managerial action), and ultimately investors' outcome (performance). Copyright © 2010 John Wiley & Sons, Ltd.     

R&D investment dynamics in agglomerations under weak appropriability regimes: Evidence from Indian R&D labs

What are the dynamics of R&D investment when firms agglomerate in environments with weak intellectual property rights protection? Specifically, do foreign and domestic firms present equal opportunities for free riding by domestic firms in such environments? We examine the impact on local firms' R&D investment from knowledge spillovers originating from co‐located foreign and domestic firms within and across industries. Building on fieldwork in India, we predict free riding by local firms on nearby foreign and local firms. Furthermore, we expect local firms to free ride more from other local firms within their industry and from foreign firms across industries. Analyzing a sample of 3,475 R&D lab investment decisions during 2003–2010 in India, we find that local firms free ride from other local firms both within and across industries. Copyright © 2014 John Wiley & Sons, Ltd.     

Why do venture capital firms exist: An institution-based rent-seeking perspective and Chinese evidence

This paper is a theory development to Amit, Brander, and Zott (1998, Journal of Business Venturing, 13: 441-466) on the nature of venture capital firms. In their paper, the authors argue that venture capital firms exist because they fill a market niche by developing the ability to overcome extreme information asymmetry embedded in high-risk entrepreneurial firms. However, this theory encounters difficulties in explaining a variety of organizational and behavioral divides among venture capitalists in different contexts and over time. In this paper, we apply the institution-based view to reveal the nature of venture capital. We argue that it is the venture capitalists’ capability to capture economic rents from the institutional environment that distinguish them from other financial intermediaries. We show the connection of our perspective with the conventional view as well as the usefulness of this theory in explaining the development of the venture capital industry in China.     

When do firms undertake R&D by investing in new ventures?

We explore the conditions under which firms are likely to pursue equity investment in new ventures as a way to source innovative ideas. We find that firms invest more in new ventures—commonly referred to as ‘corporate venture capital’—in industries with weak intellectual property protection and, to some extent, in industries with high technological ferment and where complementary distribution capability is important. Furthermore, we find that the greater a firm's cash flow and absorptive capacity, the more likely it is to invest. Our results suggest that in Schumpeterian environments incumbents may supplement their innovative efforts by tapping into the knowledge generated by new ventures. Copyright © 2005 John Wiley & Sons, Ltd.