Showing papers in "Journal of International Business Studies in 2005"
TL;DR: A review of several innovative advances in culture and international business to stimulate new avenues for future research is provided in this paper, where the issues surrounding cultural convergence and divergence, and the processes underlying cultural changes are discussed.
Abstract: The paper provides a state-of-the-art review of several innovative advances in culture and international business (IB) to stimulate new avenues for future research. We first review the issues surrounding cultural convergence and divergence, and the processes underlying cultural changes. We then examine novel constructs for characterizing cultures, and how to enhance the precision of cultural models by pinpointing when cultural effects are important. Finally, we examine the usefulness of experimental methods, which are rarely used by IB researchers. Implications of these path-breaking approaches for future research on culture and IB are discussed.
1,116 citations
TL;DR: This article presented a three-stage process of conceptual development in response to the call for a unifying direction for research in the emergent field of international entrepreneurship, drawing on classic approaches to internationalisation, and importing insight from entrepreneurship as a separate and distinct field of study.
Abstract: This paper presents a three-stage process of conceptual development in response to the call for a unifying direction for research in the emergent field of international entrepreneurship. Drawing on classic approaches to internationalisation, and importing insight from entrepreneurship as a separate and distinct field of study, the paper develops three potential models of internationalisation as a time-based process of entrepreneurial behaviour. The models evolve from the simple through general to precise levels of conceptualisation. Research implications are discussed.
994 citations
TL;DR: In this paper, the authors examined the relationship of cultural distance with entry mode choice, international diversification, and MNE performance by meta-analyzing data from 66 independent samples, with cumulative sample sizes ranging from 2,255 to 24,152.
Abstract: Although a growing literature indicates that cultural distance – that is, differences between national cultures – is an important determinant of organizational actions and performance, both empirical and theoretical concerns abound. In this study, the relationships of cultural distance with entry mode choice, international diversification, and MNE performance are examined by meta-analyzing data from 66 independent samples, with cumulative sample sizes ranging from 2,255 to 24,152. Regression results failed to provide statistical evidence of significant relationships between cultural distance and entry mode choice, international diversification, and MNE performance. The examination of moderator effects, however, yielded important results. We found a strong negative association between cultural distance and entry mode choice for US-based MNEs. The cultural distance–international diversification relationship was negative for high-technology industries, while it was positive for other industries. Cultural distance also had a strong positive effect on MNE performance for developed country investments. A similar, strong positive relationship was found between cultural distance and international diversification in studies with more recent samples. Results of this study indicate that substantial additional research is needed before the role of cultural distance is fully understood.
989 citations
TL;DR: Oviatt and McDougall's JIBS article identified and defined international new ventures (INVs) and their prominent role in the global marketplace as mentioned in this paper and laid an important theoretical foundation for research into international entrepreneurship.
Abstract: Oviatt and McDougall’s JIBS article identified and defined international new ventures (INVs) and their prominent role in the global marketplace. The article spurred worldwide interest in INVs by raising questions about the validity and efficacy of existing theory, especially about the Uppsala process model of internationalization. The article also laid an important theoretical foundation for research into international entrepreneurship (IE), where younger and wellestablished companies use their entrepreneurial activities to create value as they internationalize their operations. This paper reviews Oviatt and McDougall’s original propositions, highlighting their important contributions to the field. The paper also highlights the progress made in research using Oviatt and McDougall’s framework, the major debates that persist about the nature and role of INVs, the source of their competitive advantages, and the key issues to be explored in future research.
871 citations
TL;DR: In this paper, three lines of theorising have been advanced: (1) organisational economics theories; (2) resource-based theories; and (3) institutional theories, and they discuss how they contribute to the understanding of key issues, such as entry strategies of foreign investors, restructuring strategies of local incumbents, and entry and growth strategies of entrepreneurs.
Abstract: Since the 1990s, Central and Eastern Europe (CEE) has provided unique societal quasi-experiments, which represent opportunities to test the applicability of existing theories in international business and management studies and to develop new ones. Specifically, three lines of theorising have been advanced: (1) organisational economics theories; (2) resource-based theories; and (3) institutional theories. For each of these theories, we discuss how they contribute to the understanding of key issues, such as entry strategies of foreign investors, restructuring strategies of local incumbents, and entry and growth strategies of entrepreneurs. On this basis, we assess how CEE research has influenced the overall trajectories of theory development. CEE research has in particular highlighted the importance of contextual influences such as institutions. Thus, scholars have aimed at incorporating institutions into theories (such as organisational economics theories and resource based theories) and advancing an institution-based view of business strategy as a complementary perspective. We outline how future research in CEE and other emerging economies may advance this research agenda further.
779 citations
TL;DR: Oviatt and McDougall as mentioned in this paper reviewed the impact of their contribution and discussed new research themes raised by their challenge to the process theories of internationalisation, including international entrepreneurship.
Abstract: The article by Oviatt and McDougall threw the spotlight on international entrepreneurs, on international new ventures, and on their importance in the globalising world economy. Recognising the rich theoretical implications of this phenomenon, they mounted a challenge to received internationalisation process theories and established a new and exciting research theme, that of international entrepreneurship. This article reviews the impact of their contribution and discusses new research themes raised by their challenge to the process theories of internationalisation.
478 citations
TL;DR: This paper found that consumers actually have only modest knowledge of the national origins of brands, and that American consumers' proficiency at recognizing foreign brand origins is predicted by variables such as socioeconomic status, past international travel, foreign language skills, and gender.
Abstract: An ever-growing literature has reported consumer bias toward national origins of products, and has explored factors that moderate such bias. Researchers have assumed, if only tacitly, that consumers are knowledgeable of brand origins, and that this knowledge is a significant influence that drives judgments of product quality, brand attitudes, and choice behavior in the marketplace. Using categorization theory and attribute diagnosticity as the theoretical foundation, our research reveals that consumers actually have only modest knowledge of the national origins of brands, and that American consumers’ proficiency at recognizing foreign brand origins is predicted by variables such as socioeconomic status, past international travel, foreign language skills, and gender. In the second of two studies, we determined that brand origin recognition is based largely on consumers’ associations of brand names with languages that suggest country origins. These studies ultimately lead us to conclude that past research has inflated the influence that country of origin information has on consumers’ product judgments and behavior and its importance in managerial and public policy decisions.
432 citations
TL;DR: In this article, a model of the determinants of political strategies used by foreign subsidiaries of multinational enterprises (MNEs) is developed and tested using survey and archival data from Western European subsidiaries of US MNEs.
Abstract: In this study, we develop and test a model of the determinants of political strategies used by foreign subsidiaries of multinational enterprises (MNEs). Using recent theoretical advances in institutional theory that recognize that MNE subsidiaries are confronted with pressures for isomorphism within the corporation (internal legitimacy) and within the host country (external legitimacy), we integrate international business and political strategy literatures to create a multilevel model of subsidiary, host country and parent determinants of political strategy. Our hypotheses are tested using survey and archival data from Western European subsidiaries of US MNEs.
398 citations
TL;DR: The article that has been awarded the 2004 Journal of International Business Studies Decade Award, "Toward a Theory of International New Ventures" represents an integration of international business, entrepreneurship, and strategic management scholarship.
Abstract: Our article that has been awarded the 2004 Journal of International Business Studies Decade Award, ‘Toward a Theory of International New Ventures’, represents an integration of international business, entrepreneurship, and strategic management scholarship. This retrospective article explains the intellectual and personal origins of the work. In addition, it highlights the definitions of ‘international new ventures’ and ‘international entrepreneurship’. Finally, in response to recent concerns about the importance of international business scholarship, the research discussed here stands as an example of the successful exportation of international business scholarship into adjacent disciplines.
382 citations
TL;DR: In this paper, a more complete and multidisciplinary form of explanation, grounded in socio-economics, is advocated as a means of meeting the challenges both of understanding and of policymaking at several levels.
Abstract: Critiques of international business theory have recently pointed to weaknesses in the handling of context, of culture, and of policy implications. It is contended that the origins of such failings lie in the discipline's commonly accepted methodologies, and in turn that they have epistemological roots. As a route out of the dilemmas faced, a proposal is made to adopt more complete ways of handling determinacy, including the influences of history, culture, and the societal emergence of institutions. Business systems theory is drawn upon and a model proposed, developed from the work of Whitley. In this, culture is seen as underpinning formal institutions, which in turn underpin societal business systems. The use of the model relies on the ideas of Geertz on ‘thick description’ and of Ragin on holistic analysis. It is illustrated with a comparison of the American and French socio-economic systems, seen historically. Findings in strategy research about the geographically defined nature of firm supremacy in many industries are brought into the account, using the business systems literature. Consistent patterns of determinacy, as well as distinct and contrasting trajectories of business system evolution, are noted. A more complete and multidisciplinary form of explanation, grounded in socio-economics, is advocated as a means of meeting the challenges both of understanding and of policymaking at several levels.
380 citations
TL;DR: In this article, the authors develop a comparative discovery, evaluation and exploitation framework (CDEE), which takes as a starting point that individuals motivated by diverse goals enact market opportunities in a variety of social settings.
Abstract: Shane and Venkataraman’s Discovery, Evaluation and Exploitation entrepreneurship framework ignores issues central to comparative international entrepreneurship (IE) because of unnecessarily under-socialized assumptions regarding entrepreneurial opportunities and the individuals who discover them. To better promote comparative IE research, we develop a Comparative Discovery, Evaluation and Exploitation framework (CDEE), which takes as a starting point that individuals motivated by diverse goals enact market opportunities in a variety of social settings. Building on this characterization, the paper explores how and why processes of opportunity discovery, evaluation and exploitation vary across and within nations, as well as the implications of these differences.
TL;DR: In this paper, a comparative institutionalist approach combined with a power/interests perspective is used to examine the processes whereby diversity policy is "internationalised" by US multinational companies and argue that the process of policy transfer to UK subsidiaries is complicated by incomplete and contested "institutionalisation" of diversity within the US itself, and by differing conceptions of diversity between the US and the UK.
Abstract: This paper uses a comparative institutionalist approach combined with a power/interests perspective to examine the processes whereby diversity policy is ‘internationalised’ by US multinational companies. It argues that the process of policy transfer to UK subsidiaries is complicated by incomplete and contested ‘institutionalisation’ of diversity within the US itself, and by differing conceptions of diversity between the US and the UK. The ability of actors within the UK subsidiaries to mobilise and deploy specific power resources allows them to resist the full implementation of corporate diversity policy, leading to a range of compromise accommodations. It is argued that the findings have more general implications for analysing the transfer of HR practices between national business systems.
TL;DR: In this article, the authors focus on a specific organizational mechanism, R&D co-practice, which they believe is an important facilitator of knowledge integration in multinationals with global innovation strategies.
Abstract: This paper contributes to the developing literature on the management of distributed innovation in multinational firms. We focus on a specific organizational mechanism, R&D co-practice, which we believe is an important facilitator of knowledge integration in multinationals with global innovation strategies. In our formulation, R&D co-practice (joint technical activities between units) increases levels of absorptive capacity and social capital among participating units, thus increasing the likelihood that they will share knowledge at future time periods. We find strong support for this hypothesis through an empirical analysis of ‘reverse’ (subsidiary to headquarters) knowledge integration in two sectors – automotive and pharmaceuticals – over a 21-year period.
TL;DR: This article developed a theory of international mentoring by integrating current perspectives on protean and boundaryless careers with the literature on mentoring and expatriates and discussed both hierarchical and peer, and formal and informal, mentoring relationships to delineate which relationships best address specific expatriate needs.
Abstract: Although effective in improving socialization, development, and retention in the US domestic context, mentoring would likely benefit expatriates and their firms, but it remains theoretically underdeveloped in the international context. We develop a theory of international mentoring by integrating current perspectives on protean and boundaryless careers with the literature on mentoring and expatriates. Expatriates need multiple mentors to assist their adjustment and development during the pre-departure, expatriation, and repatriation stages of international assignments. We discuss both hierarchical and peer, and formal and informal, mentoring relationships to delineate which relationships best address specific expatriate needs. International mentoring may improve expatriate adjustment, development, and retention, and thus may affect outcomes of international strategy. We conclude by discussing implications and avenues for future research.
TL;DR: In this paper, the authors empirically examined the performance implications of strategic fit of relational norm governance strategies in global supply chain relationships between US firms and their primary Japanese and US partners and found that firm performance is enhanced when the relational norms of information exchange and solidarity are fit to culturally founded norm expectations across culturally diverse relationships simultaneously.
Abstract: The search for strategic fit has become a core concept in normative models of strategy formation. The issue of strategic fit is becoming increasingly important in global supply chain relationships as managers and academics examine the effectiveness of culturally founded relational governance strategies across multiple supply chain relationships. This study empirically examines the performance implications of strategic fit of relational norm governance strategies in global supply chain relationships between US firms and their primary Japanese and US partners. The performance implications of fitting relational norm governance strategies (i.e., information exchange, flexibility and solidarity) across culturally diverse partners are tested. Results indicate that firm performance is enhanced when the relational norms of information exchange and solidarity are fit to culturally founded norm expectations across culturally diverse relationships simultaneously. Implications for theory and practice are discussed.
TL;DR: In this article, the authors used a model tested with data collected through a survey of managers in subsidiaries of multinational firms to find dual independent paths to improved performance, one through networking and inter-unit learning and the other through subsidiary autonomy and innovation.
Abstract: Over the last decade, the international business literature has placed ever-greater emphasis on the role that learning and innovation play in determining multinational and multinational subsidiary performance The present research seeks to understand the organizational paths leading to such desirable outcomes as greater learning, increased innovation and improved performance Using a model tested with data collected through a survey of managers in subsidiaries of multinational firms, we find dual, independent paths to improved performance – one through networking and inter-unit learning and the other through subsidiary autonomy and innovation A particular feature of these findings is that they can be shown to be robust after controlling for a wide range of environmental pressures and firm and industry factors However, in the absence of environmental controls the dual path finding is rejected These conflicting findings support the imperative to test models that include a diverse range of environmental pressures so that the true effects of organizational factors on learning, innovation and performance can be identified
TL;DR: In this article, the authors extend the sourcing literature and apply these perspectives to an important transitional economy, China, and find that, at low levels of product innovativeness and technological uncertainty, the use of SA sourcing is positively related to market performance.
Abstract: Although foreign multinational firms from the Triad regions increasingly use mainland China as both a sourcing and a marketing location, no study has directly examined the sourcing strategy–performance linkage. Using resource complementarity and resource dependence theory, we extend the sourcing literature and apply these perspectives to an important transitional economy— China. These two theoretical perspectives suggest that product and uncertainty factors moderate the relationship between strategic alliance-based sourcing (SA sourcing) of major components and market performance. We find that, at low levels of product innovativeness and technological uncertainty, the use of SA sourcing is positively related to market performance. However, the effects of product differentiation and demand uncertainty on the sourcing–performance relationship are insignificant. Journal of International Business Studies (2005) 36, 187–208. doi:10.1057/palgrave.jibs.8400120
TL;DR: The authors empirically examined the determinants of the decision whether or not to appoint an expatriate as the managing director of overseas affiliates for a sample of 844 Japanese manufacturing affiliates operating in Asia in 1995.
Abstract: We empirically examine the determinants of the decision whether or not to appoint an expatriate as the managing director of overseas affiliates for a sample of 844 Japanese manufacturing affiliates operating in Asia in 1995. Confirmation is found for hypotheses derived both from a control and coordination perspective on expatriation and from a knowledge creation and learning perspective. Strategic dependence of the parent on the affiliate increases the propensity to appoint expatriates, whereas localisation of the affiliate reduces it. Organisational experience in the country, both by the affiliate and by the firm, increases the probability that host country nationals will be appointed. Inter-firm relationships within vertical keiretsu groups impact on expatriation policies through inter-organisational knowledge exchange in host countries and the mitigation of localisation requirements owing to intra-group transactions.
TL;DR: In this paper, the authors examine how transactional characteristics and the institutional environment influence contractual governance for international joint ventures (IJVs), and they find that term specificity and contractual obligatoriness increase when the proprietariness of resources to be invested in the IJV or the incompleteness of the host country's legal system increase.
Abstract: This study examines how transactional characteristics and the institutional environment influence contractual governance for international joint ventures (IJVs). Unlike previous studies that view joint venture contractual governance as a unidimensional construct (clause specificity), thus causing a debate upon whether IJV contracts should be more specific, contractual governance herein is defined as a three-dimensional construct that includes the extent to which contractual terms are clearly specified (term specificity), possible contingencies are accounted for (contingency adaptability), and joint venture parties are legally bound to the contract (contractual obligatoriness). Our analysis of IJVs in China suggests that term specificity and contractual obligatoriness increase when the proprietariness of resources to be invested in the IJV or the incompleteness of the host country's legal system increase. Contractual obligatoriness appears to be an increasing function of economic exposure and environmental volatility, whereas contingency adaptability in a contract rises when interparty dependency, investment uncertainty, and knowledge proprietariness intensify or when environmental hazards escalate. These results suggest that an IJV contract, if structured multidimensionally as above, can curtail opportunism and guide venture evolution at the same time. These contractual dimensions should not be prefixed but properly aligned with transactional and institutional characteristics. This alignment has strong implications in reducing transaction costs and spurring IJV evolution in the complex and volatile institutional environment.
TL;DR: The key to international business is that it approaches empirical phenomena at a variety of levels of analysis, using a wide range of theoretical frameworks, such as the individual manager, the firm, the industry, and the environment as discussed by the authors.
Abstract: The key to international business is that it approaches empirical phenomena at a variety of levels of analysis, using a variety of theoretical frameworks. The most important levels of analysis are the individual manager, the firm, the industry, and the environment. In each category there is vast heterogeneity. Figure 2.1 illustrates this interaction between issues and theories. It has levels of analysis on the vertical axis and the basic social sciences on the horizontal axis as systems of thinking about the phenomena. It would also be possible to replace fundamental disciplines by the primary management disciplines (marketing, finance, strategy, etc.).
TL;DR: In this paper, the implications of national culture for the translation of innovations, and case study illustrations of regulatory and firm-level governance changes experienced in Germany are provided, demonstrating that the diffusion of both kinds of change has been subject to substantial translation that is consistent with German national culture.
Abstract: Contrasting systems of corporate governance persist internationally but are subject to regulatory and firm-level institutional change. Such changes may be viewed as organisational innovations, often imported from the USA in the face of different national cultures. This paper analyses the implications of national culture for the translation of innovations, and provides case study illustrations of regulatory and firm-level governance changes experienced in Germany. These illustrations demonstrate that the diffusion of both kinds of change has been subject to substantial translation that is consistent with German national culture.
TL;DR: In this article, an acculturated view of issue-selling is proposed to help multinational organizations better facilitate and exploit potentially valuable input from local subsidiary managers, who represent the local culture and shift relevant priorities accordingly.
Abstract: In multinational organizations, local market responsiveness is critical to the development of effective strategies. This responsiveness is expected to occur in part as the result of upward influence from local subsidiary managers, who represent the local culture and shift relevant priorities accordingly. Issue-selling – defined as directing top management's attention to particular issues and helping them understand such issues – is one important way in which subsidiary managers pursue upward influence. The purpose of this paper is to help multinational organizations better facilitate and exploit potentially valuable input from local subsidiary managers. To do so, we propose an acculturated view of issue-selling. More specifically, we argue that subsidiary managers socialized by different national cultures vary: (1) in the extent to which their intention to sell issues is influenced by various contextual cues; and (2) in their choice of selling strategies. These theoretical differences suggest that local subsidiary managers from different cultures will differ in the way they approach issue-selling and, in turn, in the way they influence the strategy-making process. The discussion traces the implications of this line of reasoning for future research on the influence of local subsidiary managers and, more generally, for research on the cultural embeddedness of the strategy process.
TL;DR: In this paper, the degree to which country differences in intellectual property rights protection affect the choice of companies for a particular mode of international inter-firm R&D partnering was studied.
Abstract: This paper studies the degree to which country differences in intellectual property rights protection affect the choice of companies for a particular mode of international inter-firm R&D partnering. It focuses on the preference of companies for either an equity joint venture or a contractual partnership. We find that international differences in intellectual property rights protection are a significant factor: with less secure protection, firms choose R&D joint ventures rather than contractual partnerships. The level of technological change in industries has an inverse effect on the preference for international R&D joint ventures.
TL;DR: Based on the institutional vs the individual view of culture and the theory of individualism, this paper predicted that Chinese people would make less cooperative decisions than Australians in mixed-motive business situations in which no formal or informal sanction systems were in place.
Abstract: Based on the institutional vs the individual view of culture and the theory of individualism–collectivism in explaining the in-group–outgoup distinction that people make in different cultures, we predicted that Chinese people would make less cooperative decisions than Australians in mixed-motive business situations in which no formal or informal sanction systems were in place. We also predicted that Chinese would be less cooperative with foreigners than with fellow Chinese when they were in a foreign territory, whereas Australians would be equally cooperative with members of both groups. Data from two cross-national experiments provided general support for these predictions. Moreover, the results of Study 2 showed that the nation effects on cooperative decision-making were mediated by individual cultural orientation on vertical and horizontal individualism. The theoretical and practical implications of these findings are discussed in the context of cross-cultural business settings.
TL;DR: In this article, the authors examined the impact of Anglo-American financial markets on CEO compensation and concluded that the higher CEO compensation found in firms exposed to Anglo American financial influence reflects institutional contagion, the demand for and supply of viable CEO candidates, and a pay premium for increased risk of dismissal.
Abstract: This study examines the impact of Anglo-American financial markets on CEO compensation. Starting from a sample of Norwegian and Swedish listed firms, we analyse this effect as manifested in the capital market (Anglo-American cross-listing) and in the market for corporate control (Anglo-American board membership). These effects are analysed together with the geographically broader effect of the product and service market internationalisation of the firm. We conclude that all three effects contribute positively to the level of CEO compensation. We argue that the higher CEO compensation found in firms exposed to Anglo-American financial influence – as compared with firms not subject to such influence – reflects institutional contagion, the demand for and supply of viable CEO candidates, and a pay premium for increased risk of dismissal.
TL;DR: In this paper, a framework using partisan and opportunistic political business cycle (PBC) theory was proposed to predict the investment risk perceived by investors holding sovereign bonds during 19 presidential elections in 12 developing countries from 1994 to 2000.
Abstract: International business research has paid scant attention to whether and how electoral politics and economic policies affect foreign investment risk assessment, particularly in developing countries, where the last decade has seen both considerable foreign investment and domestic progress toward democratization and electoral competitiveness. We respond with development and testing of a framework using partisan and opportunistic political business cycle (PBC) theory to predict the investment risk perceived by investors holding sovereign bonds during 19 presidential elections in 12 developing countries from 1994 to 2000. Consistent with our framework, we find that bondholders perceive higher (lower) investment risk in the form of higher (lower) credit spreads on their sovereign bonds as right-wing (left-wing) political incumbents appear more likely to be replaced by left-wing (right-wing) challengers. For international business research, our findings illustrate the promise of PBC theory in explaining the election-period behavior of sovereign bondholders and, perhaps, other investors who also ‘vote’ in developing country elections and can substantially influence the price and availability of capital there. For developing country investors and states, our findings highlight the financial effects of democracy in action, and underscore the importance of state communication with investors during election periods.
TL;DR: The authors developed an organizational justice-based contingency model relating parental control structure to parent conflict, and suggested that the level of conflict between IJV parents will depend on the consistencies between the control structure and parents' contribution of proprietary resources.
Abstract: There has been significant interest in understanding how the distribution of parental control over international joint ventures (IJV) influences IJV outcomes (e.g., parent conflict, survival, performance). Yet, the accumulation of research on the relationship between control structure and IJV outcomes has been somewhat inconclusive and even contradictory. We contribute to this research stream by developing an organizational justice-based contingency model relating parental control structure to parent conflict. We suggest that the level of conflict between IJV parents will depend on the consistencies between the control structure and parents’ contribution of proprietary resources, and between control structure and the parents’ abilities to effectively monitor operations. Our analysis of Vietnamese joint ventures provides some support for our model, and suggests that the relationship between parent control structure and IJV outcomes is perhaps more complex than previously thought.
TL;DR: In this paper, the authors extend internalization theory by positioning the technology transfer transaction in the broader context of the entire value chain, including especially the manufacturing/marketing linkages with the final products market.
Abstract: Internalization theory suggests that multinational enterprises set up subsidiaries to exploit technology advantages abroad when licensing is too difficult to arrange with indigenous firms. This direct investment vs licensing trade-off, which is built on a business-to-business transaction, does not recognize the linkages with the final products market as a component of transaction cost analysis. By adopting a unilateral perspective on international technology transfer, neither does it consider the possible role of complementary assets (e.g., manufacturing capabilities) held by potential business partners in foreign countries. After taking into account the presence of such assets in indigenous firms, this article extends internalization theory by positioning the technology transfer transaction in the broader context of the entire value chain, including especially the manufacturing/marketing linkages with the final products market. More specifically, it demonstrates that conventional internalization theory neglects various alternative market governance mechanisms not captured by a licensing agreement. The analysis shows that the choice of an optimal governance structure is determined by the complementarity of strategic assets controlled by the economic actors involved, and by the linkages among the technology–manufacture interaction in two intermediate input markets, and the subsequent sales function in the final products market.
TL;DR: In this paper, the authors examined the impact of political risk in Canada on the volatility of stock returns and found that stock return volatility varies with the degree of a firm's exposure to political risk, namely, the structure of assets and the extent of foreign involvement.
Abstract: This paper examines the impact of political risk in Canada on the volatility of stock returns. Our results suggest that political news associated with the possible separation of Quebec from Canada plays an important role in the volatility of stock returns. However, our evidence indicates that investors do not require a risk premium, supporting the idea that political risk is diversifiable. We also show that stock return volatility varies with the degree of a firm's exposure to political risk, namely, the structure of assets and the extent of foreign involvement, which indicates that firms most exposed to political risk bear the burden of diversification.
TL;DR: In this paper, the authors examined the risk of US direct foreign investments over the period 1982-98 in 59 host countries and found that unexplained country risk is qualitatively and quantitatively related to unobserved political risk.
Abstract: This paper examines the risk of US direct foreign investments over the period 1982–98 in 59 host countries. The first part of the analysis builds an empirical model to explain the time-series and cross-country patterns of return on capital. The estimation then uses the return on assets (ROA) as a measure of the return on capital, and investigates its determinants. There are four main findings. First, the ROA in a majority of countries does not simply track the worldwide ROA. Second, some cross-country differences are explained by financial risks. Third, unexplained country risk is qualitatively and quantitatively related to unobserved political risk. Fourth, unexplained country risk is also compensated with a higher ROA, enhancing its credibility as a measure of political risk. The unexplained country risk is thus used to calculate a new index of political risk ratings for 56 host countries that may be useful to managers, investors, policymakers, and academics.