Knowledge that Transforms

ABSTRACT The rise of independent oversight of the accounting profession has attracted considerable research attention. Much of this research has studied how professional accounting bodies and the Big 4 firms have shaped the mandate and capabilities of independent oversight bodies. Less is known about how independent oversight has affected the workings of professional accounting bodies, particularly their capacity to simultaneously govern and represent their members. This paper advances our understanding of this dynamic through a longitudinal, interpretive case study of how the Dutch professional accounting body, the NBA (the Royal Netherlands Institute of Chartered Accountants), adapted and developed its regulatory intermediary role during a lengthy period of intense oversight by the Dutch regulator, the AFM (the Authority for the Financial Markets), and shifting levels of Big 4 firm discord. Drawing on extensive archival materials and insights gained from in‐depth interviews with key participants, the study advances existing theorizations of the work of regulatory intermediaries by highlighting both their functional variability and fragility. In responding to recurring crises and critique, the NBA's intermediary role shifted from facilitation to curation and ultimately to orchestrating the Big 4 firms' regulatory response. Such shifts were neither smooth nor predictable—characterized by a sense of “role limbo” as the NBA battled to bolster its identity and authority when sidelined by the AFM or dictated to or impeded by the Big 4 firms. In examining such shifting intermediation and contesting levels of influence, the NBA's governance and representation functions emerge as more symbiotic than oppositional, with the NBA using its fulfillment of one as a means of strengthening its execution of the other. Overall, the paper's analysis uncovers the functional fragility of the NBA, which questions whether repeated calls for professional accounting bodies to rediscover their public interest mandate have adequately appreciated the complex, contested nature of the regulatory environment in which they operate.

ABSTRACT A concentrated debt structure can facilitate creditor coordination, which reduces the financial distress cost in a liquidity default but also increases the risk of a strategic default. Debt concentration affects the sensitivity of leverage to tax through these two forces. We show that firms with a more concentrated debt structure are more responsive to state corporate income tax rate increases in increasing financial leverage, suggesting that when the tax rate increases, debt concentration's role in reducing the financial distress cost matters more. The impact of debt concentration on leverage is more pronounced when firms are subject to a high default risk, have low asset redeployability, or have a low liquidation value. Additional debt covenants can facilitate low debt concentration firms to increase leverage after tax rate increases. Our findings suggest that debt concentration is an important factor influencing the tax sensitivity of financial leverage.

Grand Challenges are complex problems that transcend national borders and affect future generations and, as a result, have traditionally been viewed as the responsibility of governments. Building on economic theories of market imperfections, we introduce a three-pronged framework to explain how multinationals contribute solutions to Grand Challenges. First, we clarify multinationals’ solutions by classifying them by their sustainability dimensions and associated market imperfections: solutions to environmental Grand Challenges arising from negative externalities and the overexploitation of common goods; solutions to social Grand Challenges resulting from unrealized positive externalities and underinvestment in public goods; and solutions to governance Grand Challenges stemming from information imperfections and abuses of market power. Second, we contextualize the global implementation of these solutions within the two drivers of globalization (technological and institutional changes) and explain their supporting and constraining effects: technological advances enable cross-border development and coordination, but technological inertia and lock-in produce suboptimal outcomes; pro-market reforms facilitate cross-border diffusion, but pro-market reversals limit global knowledge transfer. Third, we explain how intersectoral collaboration and financing are supplementary drivers enabling the scaling of multinationals’ solutions across countries. Overall, our framework resolves the paradox that multinationals can help solve, rather than exploit, market failures.

Abstract Climate change poses significant global challenges to multinational enterprises (MNEs). One crucial solution hinges on the development of new technologies to mitigate climate change or adapt to its adverse effects. However, it remains unclear what factors can effectively motivate MNEs’ development of climate innovation. Integrating the resource dependence theory and the natural resource-based view, we argue that MNEs’ strategies are shaped by their dependence on the global ecological environment for natural resources—coined here as global ecological dependence . When exposed to elevated climate risks, MNEs tend to engage in climate innovation to assuage the uncertainty associated with their global ecological dependence. This tendency is moderated by climate-related formal and informal institutions that alter the perceived benefits and costs of climate innovation: stringent regulatory demand for climate action weakens this tendency as it increases firm costs and can divert resources, whereas heightened societal demand enhances this tendency as it can increase MNEs’ perception of the benefits of climate innovation. We find evidence for our hypotheses in a panel of MNEs listed in the United States from 1995 to 2017. Our study contributes to resource dependence theory and extends our understanding of climate innovation as a viable solution to climate change.

Abstract While geopolitical conflicts, including trade wars, have garnered substantial scholarly attention in recent years, the impact on the outsider firms not directly involved in such conflicts remains underexplored. Engaging in real-options informed analysis, we examine how MNEs from third countries may respond to trade wars by capitalizing on the potential for competitive opportunities: where trade wars prompt the scaling up of third-country subsidiary operations in the involved countries. We further explore how the strategic responses of third-country MNEs to the opportunities presented by a trade war can be enhanced by the strategic flexibility manifest in parent-MNE multinationality, the resources and networks embedded in local partners, and the presence of bilateral economic agreements. Employing the 2018 US–China trade war as an empirical context, our panel data encompass 3601 Chinese subsidiary operations for outsider MNEs hailing from 51 countries, which yields 14,404 annual subsidiary-level observations to conduct difference-in-differences analysis. The empirical results indicate that third-country MNEs disproportionately expanded their Chinese operations in response to the US–China tariff conflict, and that these strategic responses were pronounced for subsidiaries with highly multinational parents, local partnerships in the involved country, and a home–host country bilateral agreement.

Abstract Despite the increasing recognition of digital globalization in international business (IB) literature, there is a more pressing need for a comprehensive understanding of the unprecedented power generated by big-tech multinational enterprises (MNEs). This paper suggests that harnessing data ubiquity globally, instantaneously, and continuously represents a defining feature and a revolutionary power source for big-tech MNEs. By leveraging global data value chains through a mutually reinforcing data-AI feedback loop of data access, analysis, and application, big-tech MNEs can reshape IB practices and challenge global regulatory frameworks. Drawing on power-dependence theory, our research framework highlights a logic of power mutuality characterized by the interplay between power generation and power counterbalance. These two forces provide a holistic lens for examining how big-tech MNEs create data-based power, but are simultaneously countered by the economic and sociopolitical stakeholders of big-tech MNEs. We propose promising avenues for future research on MNEs’ data strategies, global data value chains, foreignness and liabilities of data, and global data governance.

Abstract Gender wage discrimination is a grand challenge that constrains economic growth worldwide and denies women fair opportunities. Yet, we know surprisingly little about how women’s own experiences of wage discrimination steer their career decisions. We adopt the perspective of job-seeking women and argue that prior exposure to wage discrimination reshapes their employer preferences. Specifically, it can flip the liability of foreignness typically faced by foreign MNCs into a perceived employer advantage because foreign MNCs can deviate from the host country’s gender-biased norms. We study this mechanism for 165,624 female professionals and managers who changed jobs in Denmark between 2002 and 2015, using a pay transparency law from 2006 for identifying the underlying mechanism. We find that women who have suffered larger wage discrimination in domestic employment are more likely to start working for foreign MNC subsidiaries. This effect is weaker in labor markets in which high-performing domestic employers can offer other benefits, such as reputation or job security. The effect is stronger when foreign MNC subsidiaries signal gender fairness through a higher share of women in management. Overall, our findings show how wage discrimination redirects female career paths, transforming a grand challenge into a strategic advantage for foreign MNCs.

Abstract In this retrospective, we expand on theorizing about institutions and social entrepreneurship (SE) as presented in our Decade Award-winning 2015 article. Our 2015 paper developed the institutional configuration perspective, which considers joint and interaction effects of formal and informal institutions. It organized disagreement about how formal institutions shape SE, contrasting the institutional voids and institutional support perspectives. In this retrospective, we introduce a revised hierarchy of institutions as a ‘middle-ground’ approach to advance research on institutions in international business and entrepreneurship. This hierarchy integrates insights from different disciplines (institutional economics, sociology, political science, and cultural theory). It explicates the macro-level economic and microfoundational psychological effects of four layers of formal (government activism and constitutional institutions/rule of law) and informal institutions (cultural values and norms). The hierarchy progresses research on institutional voids by distinguishing four types of formal and informal institutional voids. It advances research on institutional configurations by highlighting new synergistic and compensatory configurations. It also offers new insights into institutional change. Finally, we advance research on institutions and SE by theorizing a new institutional paradox for SE that reconciles the institutional void versus support debate and by charting opportunities for how institutions shape the SE process from entry to exit.

Abstract Recent years have seen a rise in global trade of “green products”—those designed to minimize environmental harm compared to traditional alternatives. In this study, we examine the relevance of pollution haven effects—i.e., shifts of production toward countries with less stringent environmental standards—in firms’ global sourcing strategies for green products. Given the importance of credible and sustainable manufacturing practices in firms’ global value chains for green products, we expect that country environmental standards shape global sourcing decisions for green versus non-green products differently. Our findings using data on global imports and exports for more than 5000 distinct products over the 2002–2019 period show that green products are more likely to be sourced from countries with higher environmental stringency, whereas non-green product sourcing patterns align with prior research, which emphasizes the appeal of lower environmental standards and cost-efficiency. This green sourcing effect is stronger for consumer-facing products and for sourcing into countries where consumer engagement in environmentalism is higher and non-governmental organizations are more active. Unlike prior research that implies that higher environmental standards hurt exporters, our results suggest that such standards can benefit green product exporters.