Performance feedback and location choice of foreign direct investment

Integrating the behavioral theory of the firm and the OLI paradigm, this paper studies how performance feedback affects the location choice of emerging market firms between developed countries (DCs) and less developed countries (LDCs) during the process of internationalization. Using the sample of 1,306 Chinese public listed firms which established new foreign subsidiaries between 2008 and 2019, we find that the further a firm’s performance is below aspiration, the more likely it will invest in LDCs than DCs, whereas the further a firm’s performance is above aspiration, the more likely it will invest in DCs than LDCs. In addition, technology-based capability and labor intensive production capability have moderating effects on the relationship between performance feedback and location choice between DCs and LDCs. This paper complements and extends the OLI paradigm by injecting dynamic and non-economic factors to explain OFDI location choice.     

Does it pay for firms in Asia's emerging markets to be market oriented? Evidence from Vietnam

The positive effects of market orientation (MO) on firm performance are empirically supported much more strongly by studies conducted in developed than in emerging markets. One commonly cited reason for this differential effect is that MO is affected by the cultural, economic and institutional characteristics of the economies in which it is applied. This study aims to determine whether or not MO is relevant in an Asian emerging market such as Vietnam and if so, how a firm in such countries can become more market oriented. Based on a survey of 300 firms and using structural equation modeling, the present study finds that MO has a significant effect on firm performance and that its adoption is driven by both internal organizational and external market forces. The study identifies these specific internal and external forces, including those that are unique to the emerging economies in Asia.     

Using macro cross‐border trade data to better understand micro‐level country of origin effects

The article adapts an estimation methodology from the border effects literature to reveal consumer ethnocentrism versus cosmopolitanism in each country, and animosity versus nostalgia between country pairs. The measurements rely on actual macro cross‐border trade data rather than individual purchase intentions typically used in the international marketing literature. The results from early 2010s suggest that purchasing intentions against imports found in this literature do not necessarily translate into actual consumption behavior in international trade. It is quite possible that the consumers are unable to assess country of origin of production despite growing ethnocentrism, and base their actual purchases on perceived origin of product brands. Specifically, it is found that most countries are cosmopolitan rather than ethnocentric, particularly developed countries, favoring any foreign product over domestic products. Most countries also have nostalgic purchasing behavior from specific trade partners with historical linkages. Outside the specific traditional animosities between a country pair, a developed country is relatively less open to imports from another developed trade partner, while an emerging country welcomes it more especially from another emerging trade partner.     

Antecedents of firm performance in emerging economies: Business groups,strategy, industry structure,and state support

A rich literature has investigated the antecedents of firm performance in developed economies, resulting in a consensus view that firm resources and strategy are the key determinants. Several arguments, however, suggest that in emerging economies other factors are more important for firm performance. This study analyzes the impact of firm strategy and industry structure as well as business group membership and state support on firm performance in an advanced emerging economy, Turkey. Using a data set compiled from a selection of the 1000 largest manufacturing firms in this country, the study employs several regression models to identify the main determinants of firm performance as measured by productivity and net profit margin. In contrast to studies of developed economies, the investigation finds that firm-related factors (competitive strategies) do not significantly influence performance; instead factors related to industry structure and business group membership are the strongest determinants of firm performance; further, state support interacts with business group membership and is positively related to productivity.     

Performance Heterogeneity in Latin America: An Investigation into the Transient Effects of Country of Origin

The heterogeneity of firm performance has been studied from the perspective of factors, including the firm effect, the industry effect, and the country effect. This study emphasizes the importance of country transient effects in light of the volatility present in Latin American countries. Variance decomposition was carried out for the economic and operational performance of five countries in the period from 1998 to 2007. The results show that country effects matter for Latin America, its transient effects increase in periods of higher turbulence, and have a greater effect on a firms' economic performance than on its operational performance.     

The performance of cross-border acquisitions targeting African firms

This paper examines the performance of cross-border acquisitions (CBAs) of fims domiciled in Africa. We examine 503 deals involving firms from 23 developed and 20 emerging countries, acquiring targets in 33 African countries. We find that, on aggregate, Africa bound CBAs significantly underperform, and that emerging economy acquirers outperform their developed economy counterparts. Further, significant variations in deal performance is documented when the target firms are categorised according to the level of development of African financial markets, industries, and to some extent, economic blocs. The results are robust to various firm, industry, deal and country specific characteristics.     

Determinants of voluntary environmental management practices by MNE subsidiaries

There have been few empirical studies of the determinants of voluntary environmental management practices (VEMPs) of MNE subsidiaries operating in emerging countries. To provide insight on this issue, this study explores the antecedent factors that drive MNE subsidiaries to adopt VEMPs, using data drawn from a key emerging country – Turkey. Based largely on the arguments of institutional theory and the resource based view of the firm, a number of hypotheses are formulated in order to investigate the effects of stakeholder pressures, perceived polluting potential, customer focus and competitive intensity. Each of these factors, with the exception of competitive intensity, is found to positively influence the adoption level of VEMPs by MNE subsidiaries. Some of the study's parent-level and subsidiary-level control variables are also found to have significant effects on the extent of VEMPs adoption by MNE subsidiaries.     

Multiple directorships in emerging countries: Fiduciary duties at stake?

This study investigates the effect of multiple directorships on firm performance, using a database of non‐financial firms listed on the Pakistan stock exchange. Prior literature provides inconsistent evidence on the relationship between multiple directorships and firm performance in an emerging country context, which may be the result of overlooking both the large differences in institutional environments among emerging countries and the dynamic endogenous relationships between board variables and firm performance. We aim to contribute to this academic debate by focusing on directorship appointments to multiple boards in a weak institutional context. Corporate governance practices, such as boards with outside directors exercising their fiduciary duties, are crucial for effective governance in weak institutional environments. However, serving in multiple directorships is expected to compromise the execution of director duties. Using a dynamic system Generalized Method of Moments model, our findings show, indeed, a negative effect of multiple directorships on firm performance in a weak institutional environment. Building on the premise that corporate governance is conditional in nature, we also tested the moderating influence of firm size on this relationship, but we did not find supporting evidence in a dynamic model setting. Our results have important practical implications for policy makers as well as firms.     

Do Credible Firms Perform Better in Emerging Markets? Evidence from China

Prior research suggests that corporate credibility is associated with firm financial performance in developed countries. This article examines whether corporate credibility is related to firm performance using Economic Observer’s rating of corporate credibility in China, the largest emerging market in the world. Based on a four-stage valuation model, we find that more reputable and credible firms outperform those with low ratings by almost 20% in 3-year stock returns and have better 3-year net profit margins, return on equity, and sales growth. This study is the first to directly examine the relationship between corporate credibility and firm performance in emerging markets such as China, and our results confirm that firms with high credibility exhibit better financial and market performance at least in the following 3 years.     

Liability of Foreignness and the Constitutive Legitimation of Foreign Firms in a Host Country

We examine population density effects on foreign firms’ likelihood to exit from a host country. The lack of constitutive legitimacy is an important aspect of the liability of foreignness experienced by foreign firms. Both foreign firms from a focal firm’s home country and foreign firms from other countries can provide constitutive legitimation for the focal firm. These intrapopulation and interpopulation legitimation effects strengthen with a greater psychic distance between the home and host countries; they also interact with and strengthen each other. Results based on a dataset containing 68,723 firm-year observations on 29,843 foreign firms in China support our predictions.     

Innovation capacity,international experience and export performance of SMEs in Brazil

Innovation capacity and international experience are factors often related to the internationalisation process of firms, with export activities as the first stage of the process. However, firms from emerging countries seem to show advantages and follow patterns of international expansion that may differ from firms based in developed countries, where the internationalisation models were created. Specifically, exporting firms from emerging countries tend to have limited resources, especially small firms (e.g., for investing in R&D). Despite these facts, the literature on export performance seems biased towards recommending firms to enhance, above all, their innovation capacity in order to achieve better export performance, while little attention is paid to international experience as a factor that is as important as innovation. In this context, the objective of this study is to investigate the impact of innovation capacity and international experience on the export performance of small and medium-sized enterprises (SMEs) located in an emerging country and to identify which factor is more significant. The Resource-Based View and Dynamic Capabilities approach were used as theoretical frameworks. A research model was developed and tested on a significant sample of Brazilian industrial SMEs. The data were analysed through partial least squares structural equation modelling. The results indicate that international experience has a greater impact on export performance than innovation capacity, showing that there is possibility of overemphasising the role of innovation in the export performance of SMEs, at least, in the Brazilian context.     

Determinants of industry performance: region vs. country effects in knowledge-intensive service industries

Recent variance decomposition studies have started trying to determine the relative importance of industry and firm on profitability, but little research has been done to investigate exactly how much the difference in regions and countries could explain the variation in industry performance. This study explores the sources of knowledge-intensive service industry performance by comparing the relative importance of region, country, and industry effects. Using a variance components model fitted to a new data set, we find that while the country effects dominate industry performance around the world and in all regions (North America, South America, West Europe, East Europe, and Asia), industry effects too play a role in developing the worldwide knowledge-intensive service industries. We also find that regional effects have little significant influence on industry performance.     

Impacts of International Greenfield Investment on Firm Valuation

Our study examines the announcement effects of 343 international greenfield investments by 289 U.S. firms for their impact on shareholder wealth. This paper develops five hypotheses based on the positive‐multinational‐network hypothesis. The evidence indicates that market reactions to announcements by firms entering developing countries are more favorable than those entering developed countries. In addition, the results show that the wealth effect for firms entering a host country for the first time is greater than for those that are already operating within the country. As for the long run, greenfield firms have shown improvement in their operating performance and stock performance. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Where does ESG pay? The role of national culture in moderating the relationship between ESG performance and financial performance

This study investigates the moderating role of a country’s culture as an external contingency factor in the relationship between a firm’s environmental, social, and governance (ESG) performance and financial performance. Using ESG performance data of 4978 firms from 48 countries for 17 years, we argue that the financial return from engaging in ESG varies depending on the countries’ cultural aspects because stakeholder evaluations and appreciations for a firm’s ESG performance differ across nations. We find that a country that espouses a culture of high individualism or masculinity tends to appreciate and reflect on this more explicitly, strengthening the relationship between a firm’s ESG performance and financial performance. Contrastingly, in a country with a culture of high power distance or uncertainty avoidance, firms’ ESG efforts are less likely to be associated with financial performance. Our findings have important implications for multinational enterprises facing various cultural environments when dealing with heterogeneous stakeholder demands across countries.     

How does R&D internationalization in multinational firms affect their innovative performance? The moderating role of international collaboration in the energy industry

This paper examines the effects of the degree and geographic diversification of a firm’s R&D internationalization on its innovative performance. We use an unbalanced panel dataset of 401 observations from 110 multinational firms operating in the energy industry over a period of six years to support the argument that both the degree and the geographic diversification of a firm’s R&D internationalization have an inverted U-shaped relationship with a firm’s innovative performance. Our results also show that collaboration among R&D units located in different countries moderates this relationship by reducing both the positive effects and the challenges of the degree of R&D internationalization. This paper extends the emerging innovation focus in the headquarters–subsidiary literature by contributing to our understanding of the implications of the international R&D activities of firms and supports the utilization of social exchange theory in order to identify the moderating influence of the collaboration among a firm’s R&D units located in different countries.     

Parallel imports and piracy in a North–South model

We consider welfare effects of parallel imports under a possibility of piracy, by constructing a model where a monopoly firm sells its product in a developed country and in a developing country. We show that parallel imports do not always make the firm worse off and consumers better off. Sometimes parallel imports benefit both the firm and consumers, irrespective of the existence of piracy. However, piracy makes parallel imports more preferable to consumers and less preferable to the firm. We also suggest that a developing country’s policy on piracy can be internationally coordinated with a developed country's policy on parallel imports, so as to improve the welfare of these countries.     

Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy

Does environmental management help foreign firms outperform local firms in emerging economies? While existing research suggests that environmental management may or may not benefit firm performance, the question is particularly under-investigated in the emerging economy context. Using the data on foreign investment into China, this study explores whether foreign firms that are under greater environmental pressure, at home or at the host, outperform comparable local firms in an emerging host country. In making this comparison, we use propensity-score matching and a difference-in-differences approach to handle the problem of endogeneity inherent in comparing the performances of foreign versus local firms. We find empirical support that foreign firms perform better than local firms when they are under high environmental pressure in the emerging host country, and this result is driven by the foreign firms originating from countries with high environmental pressure.     

Effects of Informal Institutions on the Performance of Microenterprises in the Philippines: The Mediating Role of Entrepreneurial Orientation

The study investigates the effects of informal institutions and entrepreneurial orientation on the performance of microenterprises at the subnational level within a developing country context. Using structural equation modeling based on a large-scale survey of 735 microenterprises in the Philippines, it is found that informal institutional factors and entrepreneurial orientation are associated with firm performance. However, further analysis reveals a strong mediating role of entrepreneurial orientation on the informal institutions-firm performance relationships. This finding is novel and adds to our understanding of the mechanism through which informal institutions affect firm performance, particularly for microenterprises in developing countries.     

Direction of outward FDI of EMNEs: Evidence from the Indian pharmaceutical sector

This article seeks to add to the small but growing literature of emerging‐market multinational enterprises (EMNEs). Using two linked large firm‐level databases, it seeks to explore the determinants of outward investment of Indian pharmaceutical companies, distinguishing between developed‐ versus developing‐country destinations. It specifically examines the impact of two firm‐level characteristics that embody “non‐OLI” [ownership, location, and internalization] firm‐specific capabilities of EMNEs. The finding of this study is that family firms are keen on investing in other developing countries but much less so in developed countries. However, international linkages in the form of foreign investors offset this. © 2011 Wiley Periodicals, Inc.     

How valuable is information and communication technology? A study of emerging economy enterprises

Anchored at the knowledge management perspective, we address how information and communication technology (ICT) improves the productivity of emerging economy enterprises. We present the logic that ICT enhances firm performance because it is an important channel or facilitator of effective knowledge sharing and knowledge integration. We further argue that the conditions characterizing an emerging economy (i.e., a country’s economic development) and emerging economy businesses (i.e., internationalization and quality assurance) would affect the extent to which ICT contributes to knowledge management, and thus to firm performance. Our hierarchical linear modeling analysis of 6236 firms from 27 emerging economies lends support to our arguments and predictions, suggesting that ICT is a critical investment that generates satisfactory returns for emerging economy enterprises, yet this investment–return relationship is further contingent upon the macro- and micro-level conditions facing these enterprises. ICT actually adds more value to productivity when a focal emerging economy is less economically developed, and when a focal firm reaches foreign markets or its quality control and assurance is superior.