AIB 2012 Conference Proceedings - Academy of International ...

MONDAY
Session: 2.4.5 - Competitive
Track: 1 - Institutions, Governance, and CSR
Institutional Environment and FDI
Presented On: July 2, 2012 - 14:30-15:45
Chair: Jongmoo Jay Choi, Temple University
Substituting Local Institutions and Industry: How Status from Foreign Success Addresses Uncertainty Based on
Host Country Context
Markus David Taussig, National University of Singapore
This paper demonstrates that successful foreign experience helps firms overcome global market uncertainty
caused by weak host country institutions. I provide evidence from private equity (PE) across 49 emerging
economies that a track record of foreign success grows in value under conditions of: i.) weaker host country
contracting institutions at the time investments are sold; ii.) less developed host country PE industry at the time
investments are sold; and iii.) higher growth in excess global capital over the investment period. I reconcile
these findings with previous research emphasizing local experience as a substitute for contracting institutions by
introducing a model wherein: a.) local resources address PE firms' own internal context-dependent uncertainty
when selecting and investing into emerging economy deals; and b.) foreign resources reduce the external
market's uncertainty about host country context when PE firms sell off these same investments. (For more
information, please contact: Markus David Taussig, National University of Singapore, Singapore:
markus@nus.edu.sg)
Institutional Misalignment as a Driver of OFDI: An Exploratory of South American MNEs
Jack Alan Clampit, University of Memphis
Ben Kedia, University of Memphis
Nolan Gaffney, University of Memphis
The phenomenon of multinational enterprises (MNEs) moving parts of their value chain abroad for traditional
market and/or resource seeking reasons, i.e., to exploit or augment organizational level assets, has been well
studied in the international business literature. Decisions to invest abroad as an escape response to situations
where institutional factors at home are perceived to be misaligned with MNE goals, however, have not been as
fully explored. In this paper, we examine the types and consequences of institutional misalignment, before
testing our hypotheses via an examination of South American MNEs during times of institutional change. In
order to delineate traditional gain based motives versus the predominantly loss-avoidance based motive we
suggest, we employ Prospect Theory as a lens. While initial findings are mixed, they do suggest that firms may,
indeed, view OFDI as an escape response to deteriorating home-country institutions. (For more information,
please contact: Jack Alan Clampit, University of Memphis, USA: jclampit@memphis.edu)
Institutions sans Frontières: International Agreements and Foreign Investment
Robert J Weiner, George Washington University
Srividya Jandhyala, George Washington University
Do international institutions – institutions that transcend country borders– reduce MNEs' political risk We
examine whether the presence of International Investment Agreements (IIAs), negotiated among countries for
increased foreign investor protection, lowers political risk for MNEs by limiting the ability of host governments to
make discriminatory policy changes adversely affecting the value of firms' investment. Using detailed
transaction level data for sale of petroleum reserves in 50 countries, we find that MNEs pay significantly higher
AIB 2012 Conference Proceedings
Page 168