In this article, we review critiques of international business (IB) research with a focus on whether IB scholarship tackles "big questions." We identify three major areas where IB scholars have ...addressed important global phenomena, but find that they have had little influence outside of IB, and only limited effects on business or government policy. We propose a redirection of IB research towards "grand challenges" in global business and the use of interdisciplinary research methods, multilevel approaches, and phenomena-driven perspectives to address those questions. We argue that IB can play a more constructive and vital role by tackling expansive topics at the business-societal interface.
Businesses are increasingly participating in cross-sectoral partnerships to reduce their environmental impacts on society. At the same time, some are pursuing more entrepreneurial ventures to ...stimulate environmental innovations. Environmental issues, however, are evolving into grand challenges that could create massive disruptions to organizational and societal systems that transcend the interests or influence of individual firms. As such, successful adaptation to these challenges will require innovative solutions that leverage the resources and capabilities of all relevant actors. Drawing from research on cross-sectoral partnerships and environmental entrepreneurship, we propose collective environmental entrepreneurship (CEE) as a strategy to facilitate adaptation to changing global ecosystems. We explain how cross-sectoral partnerships can overcome some of the constraints facing individual sectors in developing innovative adaptations to grand environmental challenges. Further, we show how these initiatives can institute governance arrangements that help individual sectors reconcile their diverging interests. We then apply these insights to three cases where governments, private interests, and nonprofits have collaborated to adapt to the physical impacts of climate change through innovative partnerships and draw implications for how this construct could be applied to other global challenges facing society.
Research Summary
We draw upon applied psychology literature to explore interagent differences in perceived risk to their equity when making strategic risk decisions. Our theory suggests behavioral ...agency's predicted negative relationship between equity risk bearing and strategic risk taking is contingent upon four personality traits. Our empirical analyses, based on personality profiles of 158 Chief Executive Officers (CEOs) of S&P 1,500 firms in manufacturing industries, indicate the relationship between executive risk bearing and strategic risk taking crosses from negative to positive for high extraversion, greater openness, and low conscientiousness. These findings demonstrate that agency based predictions of CEO risk taking in response to compensation—and board attempts at creating incentive alignment using compensation—are enhanced by integrating insights from personality trait literature.
Managerial Summary
We study the effect of CEO personality on their behavioral responses to stock option pay. Our findings reveal that CEOs that score high on extraversion or openness and low on conscientiousness are less likely to decrease their firm's strategic risk taking as the value of their stock options increases. That is, the tendency of CEOs to become more risk averse in their strategic choices as their option wealth increases (due to loss aversion) is weaker for highly extraverted and more open CEOs, but stronger for more conscientiousness CEOs. Overall, our findings suggest that board of directors need to consider personality traits of their CEOs when designing compensation packages with the intention to align incentives of CEOs with shareholder risk preferences.
Nonmarket scholars have paid limited attention to noncompliance as an alternative strategy to capture regulators; yet noncompliance is particularly consequential given its potentially significant ...negative externalities. We exploit rich data on price ceilings introduced in India in 2013 on 255 essential medicines to test whether noncompliance by other firms drives the focal firm's noncompliance decision. Our results indicate that noncompliance by other firms, particularly those with larger products in the market, is positively associated with a focal firm's noncompliance. The focal firm's scope and sales positively moderate this relationship. Overall, our study indicates that firms are more likely conclude that the potential benefits of regulatory capture using negative incentives outweigh the potential financial and social costs in the presence of a greater number of firms that are already noncompliant. As such, our study draws attention to negative incentives as an important yet largely overlooked nonmarket strategy.
This paper examines the interaction effects of institutional differences in the cognitive, normative, and regulatory domains on cross-border acquisition and alliance formation. Using a sample of 673 ...cross-border acquisitions and alliances conducted by multinational corporations (MNCs) from the manufacturing sector of six emerging economies (EEs) over the period 1995-2008, we find significant mimicking (cognitive domain) of local firms' choice of ownership modes by firms. We also find that regulatory distance (regulatory domain) moderates the mimicking of both foreign and local firms while normative distance does not have any moderating effect. These findings contribute to our understanding of how MNCs mimic ownership modes in foreign market entry and how the interaction of this mimetic tendency with other institutional pillars affects these decisions.
The literature on the liability of foreignness focuses on explaining why foreign firms operating in a given country underperform relative to their domestic rivals. We provide a complementary ...perspective that allows for within-firm variation in the liability of foreignness, at the level of a firm's products. Specifically, we explore how consumers’ willingness-to-pay for foreign products is affected by a firm's sourcing strategy for product inputs and by heterogeneity in demand characteristics across the markets where the product is sold. We hypothesize that sourcing inputs from a regional product developer as well as cultural diversity in regional consumer markets will have a stronger positive impact on the regional sales performance of products sold by foreign firms than on those by domestic firms. Our hypotheses are supported in a product-level analysis of 2,144 console video games sold in the 11 subnational regions of the United Kingdom over the period 2005–2008. Our findings suggest that firm-level explanations of the liability of foreignness need to be supplemented by a product-level perspective that considers heterogeneity in both supply- and demand-side factors as important determinants of consumers’ willingness-to-pay for foreign products.
How private firms can overcome their unique governance challenges remains an important but understudied topic. Using novel data on more than 28,000 private firms in India from 1988 to 2017, we ...examine whether private firms can improve their survival prospects by having board interlocks with public firms and, specifically, interlocks whereby a public firm director subsequently joins the private firm's board. In our data, we found a U-shaped relationship between the number of incoming board interlocks and the probability of private firm exit. We also found that board interlocks formed by public firm directors of public firms audited by Big Four companies improve private firms’ survival more than other interlocks, consistent with the notion that such interlocks improve monitoring at private firms. Overall, our study points toward the importance of considering the role of incoming board interlocks when explaining private firm survival.
We integrate behavioral agency research and the five‐factor model of personality to re‐visit investment analysts' efficacy as a mechanism for reducing agency costs. We highlight the role of ...personality in shaping how CEOs respond to analyst recommendations, leading to boundary conditions for the efficacy of analysts as external monitors. We theorize that the extent to which a CEO perceives a threat from more positive analyst recommendations is contingent upon their personality, which shapes their subjective interpretation of the recommendation and their use of income‐increasing earnings management in response. Our findings suggest that personality is critical to understanding how CEOs respond to external monitors and the agency costs associated with the positive analyst recommendations.
Drawing on behavioral agency research, we examine how CEO equity wealth at risk of loss in the form of restricted stock influences the response of multinational corporations (MNCs) to political risk ...and political uncertainty. In a sample of 14,765 cross-border greenfield investments and full acquisitions announced by U.S. firms from 2004 to 2016, we find that while greater CEO equity wealth at risk of loss in the form of restricted stock strengthens the (positive) relationship between political risk and MNCs’ choice of greenfield investments over full acquisition, CEO equity wealth at risk of loss does not influence the relationship between political uncertainty and MNCs’ choice of greenfield investments. We contribute to international business theory by introducing a behavioral theory of MNC responses to adverse host country political environments. As such, unlike previous studies that have treated political risk and political uncertainty interchangeably, our study highlights the need to differentiate between political risk and political uncertainty as related yet distinct concepts.
CEO incentives have been the subject of great interest for human resource scholars. We explore the institutional context within which the CEO makes sense of their incentives. Our theory suggests that ...CEO equity incentives interact with institutional norms to influence foreign market entry choices. Specifically, we argue that CEOs will weigh the risk bearing created by equity incentives, along with the consequences of legitimacy loss, when deciding whether to deviate from institutional norms when internationalizing. In doing so, we advance human resource literature by demonstrating that CEO responses to incentives are influenced by institutional norms and that CEOs' decisions to deviate from institutional norms are shaped by their incentives. We find support for our framework in the analysis of the stake taken by acquirers in 4,184 cross‐border acquisitions.
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