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Beugelsdijk, Sjoerd; Hennart, Jean-François; Slangen, Arjen; Smeets, Roger
doi: 10.1057/jibs.2010.29pmid: N/A
Many international business (IB) studies have used foreign direct investment (FDI) stocks to measure the aggregate value-adding activity of multinational enterprises (MNE) affiliates in host countries. We argue that FDI stocks are a biased measure of that activity, because the degree to which they overestimate or underestimate affiliate activity varies systematically with host-country characteristics. First, most FDI into countries that serve as tax havens generate no actual productive activity; thus FDI stocks in such countries overestimate affiliate activity. Second, FDI stocks do not include locally raised external funds, funds widely used in countries with well-developed financial markets or volatile exchange rates, resulting in an underestimation of affiliate activity in such countries. Finally, the extent to which FDI translates into affiliate activity increases with affiliate labor productivity, so in countries where labor is more productive, FDI stocks also result in an underestimation of affiliate activity. We test these hypotheses by first regressing affiliate value-added and affiliate sales on FDI stocks to calculate a country-specific mismatch, and then by regressing this mismatch on a host country's tax haven status, level of financial market development, exchange rate volatility, and affiliate labor productivity. All hypotheses are supported, implying that FDI stocks are a biased measure of MNE affiliate activity, and hence that the results of FDI-data-based studies of such activity need to be reconsidered.
Berry, Heather; Guillén, Mauro F; Zhou, Nan
doi: 10.1057/jibs.2010.28pmid: N/A
Cross-national distance is a key concept in the field of management. Previous research has conceptualized and measured cross-national differences mostly in terms of dyadic cultural distance, and has used the Euclidean approach to measuring it. In contrast, our goal is to disaggregate the construct of distance by proposing a set of multidimensional measures, including economic, financial, political, administrative, cultural, demographic, knowledge, and global connectedness as well as geographic distance. We ground our analysis and choice of empirical dimensions on institutional theories of national business, governance, and innovation systems. In order to overcome the methodological limitations of the Euclidean approach, we calculate dyadic distances using the Mahalanobis method, which is scale-invariant and takes into consideration the variance–covariance matrix. We empirically analyze four different foreign expansion choices of US companies to illustrate the importance of disaggregating the distance construct and the usefulness of our distance calculations, which we make freely available to managers and scholars.
Jensen, Nathan M; Li, Quan; Rahman, Aminur
doi: 10.1057/jibs.2010.8pmid: N/A
The issue of corruption is important to politicians, citizens, and firms. Since the early 1990s, a large number of studies have sought to understand the causes and consequences of corruption employing firm-level survey data from various countries. While insightful, these analyses have largely ignored two important potential problems: nonresponse and potential false response by the firms. We argue that in politically repressive environments, firms use nonresponse and potential false response as self-protection mechanisms. Corruption is likely understated in such countries. We test our argument using the World Bank enterprise survey data of more than 44,000 firms in 72 countries for the period 2000–2005. We find that firms in countries with less press freedom are more likely to provide nonresponse and false response on the issue of corruption. Therefore ignoring these systematic biases in firms’ responses could result in serious underestimation of the severity of corruption in politically repressive countries. More important, these biases are a rich and underutilized source of information on the political constraints faced by the firms. Firm managers can better evaluate levels of corruption, not only by truthful answers to corruption questions, but also by nonresponses and false responses to such questions.
Chen, Charles JP; Ding, Yuan; Kim, Chansog (Francis)
doi: 10.1057/jibs.2010.27pmid: N/A
The international business (IB) literature has widely recognized political forces as major factors that complicate the strategic decisions of multinational enterprises (MNEs). Analyses by financial intermediaries can help to reduce the risk of information asymmetry caused by such factors. Using firm-level data from 17 jurisdictions between 1997 and 2001, this study investigates the association between a firm's high-level political connections and earnings forecasts made by financial analysts, an important group of financial intermediaries. We find that, after controlling for other determinants of forecast accuracy, analysts experience greater difficulty in predicting the earnings of firms with political connections than those of firms with no such connections. However, in jurisdictions in which corruption level is relatively high, earnings forecast accuracy is influenced more by a firm's political connections. Our findings contribute to the IB literature by demonstrating that political connections exacerbate the information asymmetry between investors and managers, and also that anti-corruption measures can curb the adverse effect of political connections on the corporate information environment. These findings bear the practical implication that MNEs must consider political issues when making resource allocation decisions.
Blomkvist, Katarina; Kappen, Philip; Zander, Ivo
doi: 10.1057/jibs.2010.22pmid: N/A
The international business literature has identified the overall emergence of technologically advanced foreign subsidiaries of the multinational enterprise (MNE), but little is known about the extent to which individual subsidiaries are able to sustain their contribution to the technological and strategic renewal of the multinational group. This paper takes on this neglected question by empirically investigating longitudinal patterns in advanced foreign subsidiaries’ entry into technologies that are new to the entire multinational group. Repeated events analysis that draws upon the complete US patenting by 211 greenfield subsidiaries of 21 Swedish multinationals over the period 1893–2008 reveals accelerated entry into new technologies, but at moderate hazard rates. The results lend support for established theorizing about the evolution of technological capabilities in greenfield subsidiaries, but question extreme views on their growing strategic importance for the MNE. It appears instead that significant additions to the technological and strategic renewal of the multinational group should be discussed in the context of a select number of “superstar” subsidiaries, not necessarily what are believed to be general developments across all subsidiaries of the MNE.
doi: 10.1057/jibs.2010.25pmid: N/A
We investigate the following important questions in international business. How do multinational enterprises (MNEs) choose ownership strategies when facing strong uncertainty in foreign market entries? How are the choices affected by industry contingencies? Following the key tenets of real options theory, we propose that, under a high level of market uncertainty, MNEs choose more flexible (rather than more committed) ownership strategies that allow adjustment of investment decisions in future. We further suggest that using flexible strategies in response to uncertainty becomes less valuable for MNEs when the industry they enter in the host country enjoys strong sales growth potential, requires less irreversible investments, and has intense competition. Empirically, we analyze the ownership strategies (ownership structure and equity share) of over 5000 new foreign investments in manufacturing industries in China during 2000–2006. We find qualified support for our hypotheses, and discuss the industry boundary conditions of adopting flexible ownership strategies in foreign market entries.
doi: 10.1057/jibs.2010.15pmid: N/A
This study examines the pace with which multinational enterprises undertake sequential entries in a foreign market. We focus on learning effects from cumulative entry experience of different modes within a host market. Moreover, we investigate the dynamic process of entry mode switch, and how cumulative entry experience reduces the expansion constraint. Using a dataset of sequential entries by US firms in China during 1979–2002, we find that the impact of cumulative entry experience on the pace of sequential entries varies across different modes. Further, firms with more cumulative entry experience can cope with the constraint of entry mode switch.
doi: 10.1057/jibs.2010.39pmid: N/A
Journal editors and academy presidents are increasingly calling on researchers to evaluate the substantive, as opposed to the statistical, significance of their results. To measure the extent to which these calls have been heeded, I aggregated the meta-analytically derived effect size estimates obtained from 965 individual samples. I then surveyed 204 studies published in the Journal of International Business Studies. I found that the average effect size in international business research is small, and that most published studies lack the statistical power to detect such effects reliably. I also found that many authors confuse statistical with substantive significance when interpreting their research results. These practices have likely led to unacceptably high Type II error rates and invalid inferences regarding real-world effects. By emphasizing p values over their effect size estimates, researchers are under-selling their results and settling for contributions that are less than what they really have to offer. In view of this, I offer four recommendations for improving research and reporting practices.
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