Risk propensity in the foreign direct investment location decision of emerging multinationals

A distinguishing feature of emerging economy multinationals is their apparent tolerance for host country institutional risk. Employing behavioral decision theory and quasi-experimental data, we find that managers’ domestic experience satisfaction increases their relative risk propensity regarding controllable risk (legally protectable loss), but decreases their tendency to accept non-controllable risk (e.g., political instability). In contrast, firms’ potential slack reduces relative risk propensity regarding controllable risk, yet amplifies the tendency to take non-controllable risk. We suggest that these counterbalancing effects might help explain observation that risk-taking in FDI location decisions is influenced by firm experience and context. The study provides a new understanding of why firms exhibit heterogeneous responses to host country risks, and the varying effects of institutions

Trust Between International Joint Venture Partners: Effects of Home Countries

Trust is an important factor in interorganizational relations. Interorganizational trust in cross-border relationships is likely to be influenced by the home countries of both partners. Using data on 165 international joint ventures (IJVs), we show that the perceived trustworthiness of an IJV partner is influenced by the general propensity to trust in the trustor's home country. Moreover, the trustworthiness perceived by a focal parent firm is also affected by the home country of the other IJV partner. This second effect is mitigated by experience between the partners

Multilevel models in international business research

Multiple-level (or mixed linear) modeling (MLM) can simultaneously test hypotheses at several levels of analysis (usually two or three), or control for confounding effects at one level while testing hypotheses at others. Advances in multi-level modeling allow increased precision in quantitative international business (IB) research, and open up new methodological and conceptual possibilities. However, they create new challenges, and they are still not frequently used in IB research. In this editorial we outline some key methodological issues for the uses of MLM in IB, including criteria, sample size, and measure equivalence issues. We then examine promising directions for future multilevel IB research considering comparative opportunities at nation, multiple-nation cluster, and within-nation region levels, including large multilevel databases. We also consider its promise for MNE research about semi-globalization, interorganizational effects across nations, clusters within nations, and teams and subsidiaries within MNEs

What Makes and What Does Not Make a Real Option? A Study of International Joint Ventures

This paper examines the boundaries of real options logic, with an application to joint ventures (JVs). We distinguish between forms of uncertainty that are resolved endogenously and those that are resolved exogenously, and theorize that only exogenous uncertainty will have the impact predicted by real options theory on a foreign investor's choice of how large an equity share to take in a JV. We theorize that macroeconomic and institutional variables generate exogenous uncertainty whereas, by contrast, cultural distance and choices pertaining to corporate scope and product or process development activities involve endogenous sources of uncertainty that investors can both assess and act upon without having to “wait and see”. Using a sample of 6472 Sino-foreign JVs, we find support for our predictions. We discuss and implement proper methods to test for the existence of null effects, as is relevant to establish the boundaries of a theory such as real options theory. We draw implications for research and practice on JVs – specifically equity share decisions, which deserve more attention – and real options, including suitable uses and desirable extensions of the concept