Family ownership concentration and FDI location choice: a bifurcation bias approach
Family ownership concentration and FDI location choice: a bifurcation bias approachFABIO QUARATO - CLAUDIA PONGELLI - ANDREA CALABRO’ - DONATELLA DEPPERU - GUIDO CORBETTA
Objectives. Stemming from the bifurcation bias approach, this working paper investigates whether there is a relationship between family ownership concentration and cultural distance in foreign direct investments’ (FDIs’) portfolio and to what extent contingency factors, such as internal (below target performance) or external (global financial crisis) threats, can impact this relationship.
Although the FDI location choice is considered as a function of a mix of economic and institutional factors (e.g., market attractiveness, low-cost resources, quality of human capital, transportation infrastructure, political stability and trade openness) (Flores and Aguilera, 2007; Kim and Aguilera, 2016), recent research suggests that characteristics of the firm’s ownership structure could substantially shape this choice (Lien and Filatotchev, 2015). In particular, the presence of a controlling family in the ownership is attracting increasing scholarly attention in the international business (IB) debate, given its unparalleled features compared to other types of ownership structures (Xu et al., 2019). High identification and alignment with the firm, more agile decision-making, a long-term horizon which leads to resilient behaviors in times of hardship, and transgenerational orientation are only some of the distinguishing features. Indeed, when dealing with strategic choices, such as the location of their FDIs, family owners take into account a unique mix of business- and family-related preferences, which make international strategic decisions in family firms significantly different from those of non-family firms (Pukall and Calabrò, 2014).
Prior studies have extensively shown that the characteristics of the ownership structure influence the extent to which the family firm goes international, i.e., international intensity (e.g., Calabrò et al., 2013; Fernández and Nieto, 2006; Sciascia et al., 2012; Zahra, 2003), as well as how the family firm internationalizes, i.e., entry mode decisions (e.g., Boellis et al., 2016; Pongelli et al., 2016; Sestu and Majocchi, 2020; Xu et al., 2019). Yet, where family firms do internationalize, i.e., location choices, is still being debated, as only a few studies have explored this issue so far and with contrasting evidence (Lien and Filatochev, 2015; Gómez-Mejia et al., 2010; Strange et al., 2009). This is surprising, considering that the location is one of the main aspects of firms’ international behavior, as also recently highlighted in the mainstream IB discussion (Kim and Aguilera, 2016). Moreover, recent attempts have addressed the inherent heterogeneity issue within the group of family firms, showing, for instance, different entry mode decisions associated with different types of family ownership constellations (Xu et al., 2019) and that family decision makers become more risk-seeking in their strategic choices, especially when they face internal (Gómez-Mejia et al., 2018) and external threats (Minichilli et al., 2016), which could compromise their future survivability and existence. However, the debate is still in its infancy and more investigation is warranted. We aim at addressing the above-mentioned gaps by answering the following research questions: 1) How does family ownership concentration influence the cultural distance of the FDI portfolio? 2) What changes occur when the firm is exposed to internal and external threats?#Bifurcation bias #Cultural distance #family firms #FDI location choices #Internationalization