Immigrants and Firm Performance: Effects on Foreign Subsidiaries Versus Foreign Entrepreneurs

Prior studies have demonstrated that foreign firms co-locate with immigrants from their home countries, but whether this improves profitability is unclear. We demonstrate that co-national immigrant communities positively affect the performance of foreign firms, and that this effect depends on the type of firm (entrepreneurial venture or MNC subsidiary) and manager (foreign versus local). We found that without an immigrant community, a foreign CEO has a negative effect on the performance of foreign entrepreneurial firms. However, this effect becomes positive as the size of the immigrant community increases because entrepreneurial firms with foreign managers benefit more from their co-national communities than similar firms with local managers. Conversely, MNC subsidiaries derive equal benefits from co-locating with immigrants regardless of their CEO’s nationality. This is consistent with our expectation that entrepreneurial firms rely more on local communities than subsidiaries and that CEOs’ social networks allow entrepreneurial firms to relate to these communities

Three Essays on Foreign Entrepreneurs

My dissertation focuses on foreign entrepreneurs—individuals who establish firms outside of their native countries. Despite the prevalence of foreign entrepreneurs, their strategic choices have received little attention in the research literature. For example, when starting a firm, an entrepreneur must decide whether to manage the business personally or hire a local manager, yet we know little about how this choice affects firm performance. To examine this issue, in the first study I use a novel dataset of foreign entrepreneurial firms in Russia and a visa policy change as an instrument for the owner-manager choice. Contrary to the expectation that foreign entrepreneurs would underperform local managers due to the liability of foreignness, I find that foreign owner-managers can benefit their firms: Exogenous assignment of a local manager in place of a foreign owner-manager reduces profits. Foreign owner-managers benefit their firms by hiring cheap native-country labor as well as through reduced agency costs. The second study examines how private benefits of occupying a managerial position affect an entrepreneur’s choice between owner-management and hiring an agent. I show that foreign entrepreneurs with a strong desire to reside in a host country are more likely to become owner-managers. These results are consistent with the idea that entrepreneurs expecting to gain private benefits from managing their firms are more likely to become owner-managers. Moreover, I demonstrate that entrepreneurs are willing to substitute the non-pecuniary benefits associated with relocation for firm profit. These findings add to a growing literature exploring the role of personal preferences in entrepreneurs’ strategic decisions, such as location choice and ownership structure. The third study examines the impact of media coverage on the location choices of foreign firms. Publicly available media information has largely been ignored by the location literature, perhaps because its impact on location choice is expected to be trivial. This study challenges this assumption: Using a new instrument for media coverage (a major anniversary of a city’s establishment date), I show that extensive foreign media coverage of a city increases the number of foreign entrants. Moreover, this effect is strongest for socially and geographically distant firms and entrepreneurs.Ph

Private Benefits and Entrepreneur's Choice of Manager*

Abstract When starting a firm, an entrepreneur is faced with a difficult question of whether to manage it personally or hire a manager. Despite the fact that many entrepreneurs choose to hire managers, the entrepreneurship literature has primarily ignored the complexity of this choice and assumed that entrepreneurs always manage their firms themselves. As a result, we know very little of what motivates an entrepreneur to manage a firm personally or hire an agent. This paper examines the role of non-pecuniary private benefits in the choice of manager. I use a setting of foreign entrepreneurs who, in order to manage their firms abroad, need to relocate to a host country and thus experience non-pecuniary benefits and costs of relocation associated with personally managing the firm. I show that entrepreneurs with presumably higher benefits of relocation are more likely to manage their firms abroad personally and even seem to substitute relocation benefits for some firm profit. These findings are consistent with the idea that entrepreneurs anticipating large non-pecuniary private benefits associated with ownermanagement are more likely to become owner-managers and are willing to substitute nonfinancial benefits for monetary earnings. These results add to the growing literature in strategy and entrepreneurship exploring the role of personal preferences in entrepreneur's strategic decisions, such as self-employment, location choice and equity control