Knowledge that Transforms

This paper examines the choice of mode for a multinational enterprise and a local firm to exploit their complementary capabilities. We develop a combined real options and game-theoretic model of modal choice by incorporating a range of factors drawn from the dynamic capabilities theory and transaction cost or organizational economics. The factors scrutinized in the model include the parties' absorptive capacities, frictions in knowledge and asset markets and associated incentive problems, cost of switching from one mode to another and cost associated with power jockeying. The model uses simulation to examine how these factors interact to influence the choice of mode. The results identify a number of conditions for one factor to dominate another, and help to reconcile different theories that have made contradicting predictions with regard to the effects of such factors as uncertainty and capability divergence on the optimal choice of mode.

Using a sample of over 800 cross-border acquisitions during 1991–2004, we find that, contrary to general perception, cross-border acquisitions perform better in the long run if the acquirer and the target come from countries that are culturally more disparate. We use mainly the Hofstede measure of cultural dimensions to measure cultural distance, but also examine alternative proxies. The positive relationship of performance to cultural distance persists after controlling for several deal-specific variables and country-level fixed effects, and is robust to alternative specifications of long-term performance. Cash and friendly acquisitions tend to perform better in the long run. There is also some evidence of synergies when acquirers are from stronger economies relative to the targets.

This paper examines how differences in distinct institutional clusters of countries impact on the vital entrepreneurial activity of venture capital, and how individuals, organizations, and their collective action in turn shape those institutions. The focus on venture capital offers researchers the opportunity to view an industry that comes from a common root, with strong and consistent traditions, in which to examine how the differing institutional settings impact on behaviors in different markets, and how the institutions themselves may change in these settings. We also focus on emerging economies, since such economies offer a natural laboratory to study the impact of institutional change. Specifically, this paper employs an institutional theory perspective to examine venture capital in two regions of the world that form institutional clusters of countries – Latin America and Asia. It is found that the venture capital industry exhibits a strong consistency across many dimensions; yet institutions in these two distinct settings result in significant differences in industry practice. Therefore this research is able to contribute to both empirical and theoretical understanding of emerging economies, institutions in those environments, and venture capital.

This paper presents new evidence on US multinational firms and shows that the decision to diversify internationally is endogenous, and depends on firm, industry, and home-country characteristics. US multinational firms are a self-selected sample, and firms that are more likely to diversify internationally have lower firm values. Contrary to the global diversification discount literature, multinational firms are valued at a premium after controlling for the endogeneity of the global diversification (foreign direct investment-FDI) decision. These results parallel the industrial diversification literature and underline the importance of controlling for endogeneity when examining the impact of international diversification on firm value.

Drawing from the resource-based view and a contingency approach, the authors develop and test a model of the antecedents of client-perceived value in the context of international, professional business-to-business services (consultants, engineers, project management, IT consultants, etc.) in a developing economies setting. Further, we examine the effects of key moderators (e.g., country-of-origin (COO), firm's international experience, client's buying experience) on client-perceived performance and value. The results generally support the hypotheses that client-perceived performance is impacted by a firm's internal resources (e.g., technical skills, customer orientation, innovation). In addition, this relationship is contingent upon the COO effect, while client-perceived value is moderated by the client's buying experience. The findings can guide practitioners as to the key drivers of client-perceived value, and under what conditions this value is maximized.

We examine how the organizational structure for diversification decisions involving firms from different countries is affected by the institutional context of the target country. Our theoretical analysis suggests that, as legal systems improve and information asymmetry is reduced, a transition from relational, “firm-like” arrangements to arm's length, “market-like” arrangements takes place. If institutions continue to improve, eventually a threshold is crossed after which arm's length deals edge out internal firm contracting. We provide an empirical test of the model using the sample of international strategic alliances, joint ventures and cross-border mergers involving US firms. Our empirical findings support the predictions of the theory. In addition, we document that US companies entering organizational structures predicted by our model are associated with greater abnormal returns around deal announcements.

In countries with secure property rights, corporate transparency improves investment efficiency and increases growth by alleviating information asymmetry. However, in countries with insecure property rights, greater transparency can increase the risk of government expropriation. Therefore some firms that would benefit most from transparency cannot take full advantage of it, as they set sub-optimal transparency levels. Using data from 59 industries in 69 countries, we find that in countries with weak property rights protection, industries that would benefit the most from transparency exhibit worse investment efficiency and grow more slowly than industries that can efficiently operate at minimal levels of transparency.

This paper examines the effect of global diversification on firm value using a data set of US firms from 1994 to 2002. We document that global diversification enhances firm value. Specifically, we find that Tobin's q, our proxy for firm value, increases with foreign sales (measured as a fraction of the firm's total sales), even after we control for well-known determinants of firm value. In contrast, we find no such evidence for industrial diversification. We find evidence of both financial and real effects driving such a value enhancement from global diversification. Furthermore, we find that the valuation benefits from global diversification are higher if the firm diversifies into countries with creditor rights that are stronger than those of the United States. Our results are also robust to controlling for the firm's endogenous choice to diversify across countries or across industries. Our study is anchored by the theories of both the financial and real dimensions of global diversification, and our results support both theories. Overall, our results provide a unifying view that global diversification benefits are driven by both the real and financial dimensions.

Culture is a critical variable in international business (IB), and Leung, Bhagat, Buchan, Erez and Gibson (2005) enrich our understanding of its role. However, that said, their framing of this variable conflates the role of national culture (NC), a particular form of culture, with culture itself, a more pivotal, holistic and central construct. This paper, by commenting on and critiquing their approach, seeks to shift the theoretical center of gravity from a NC-centric paradigm to a culture-centric, constructivist one, and from a top-down, bottom-up view to a flatter, glocalized one. Implications are provided which suggest that research should address cultural processes of patterning and production, as well as cultural forms, such as global communities and global culture (GC), which share with or even capture the spotlight from NC as a focus for studying and developing IB cultural theory.