The Internationalization of Emerging Economy Firms: The Impact of Corporate Governance and Political Connections

This dissertation consists of two chapters on the internationalization of emerging economy firms. I examine the influence of the firms corporate governance and political connections on the firms internationalization behavior, as these factors reflect the special institutional environment of emerging economies. In the first chapter I analyze the influence of a firms corporate governance on its selection of host countries. Building on agency theory, I propose that in emerging markets, the governance structure of the firm modifies the usual prediction that favorable host-country institutions attract foreign direct investment, because the emerging country conditions lead to firm heterogeneity in risk preferences and agency problems. Hence, comparing family-controlled and state-controlled firms in emerging economies, I hypothesize that family-controlled firms with CEO duality or a higher proportion of independent directors on the board are more likely to invest in countries with higher institutional quality, while state-controlled firms with such characteristics are less likely to do so. These hypotheses are supported by the data on foreign market entries by Chinas public listed firms in 2004-2013. In the second chapter I introduce the upper echelons perspective to study the impact of top managers political connections on the firms degree of internationalization. I differentiate between two types of political connections by the top manager: executive connections established through current or past working experience in the executive branch of the government, and legislative connections established through current or past representational appointments in the legislative branch of the government. After comparing the three mechanisms (resources, costs, and personal values) through which top managers political connections can influence the firms degree of internationalization, I propose that top managers executive connections facilitate the firms internationalization, while legislative connections hinder the firms internationalization. The impact of top managers executive and legislative connections is weakened by state ownership. Furthermore, I propose that CEO duality strengthens the effects of top managers political connections on the firms degree of internationalization. I find empirical support for my theories based on a dataset of 100 publicly traded Chinese firms over the 2004-2013 period.