Which entry mode yields the highest firm performance? An examination using an integrative approach of TCT and RBV antecedents.

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Which entry mode yields the highest firm performance?

An examination using an integrative approach of TCT and

RBV antecedents.

University of Groningen Faculty of Economics and Business MSc International Business & Management

Master’s Thesis

Supervisor: M.C. Sestu, PhD Co-assessor: Dr. M.J. Klasing

Timothy Johannes Brons S2641313

20-01-2020

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Abstract

Rising levels of cross-country activity of firms increased the importance of entry mode strategies. Subsequently, this increased the attention of scholars to provide a framework concerning how to determine the optimal strategy to enter a foreign market. However, prior entry mode literature has failed to provide such a framework due to mixed evidence and a fragmented research field. Using a dataset of 253 international acquisitions from US-based firms to 20 different countries, this study sheds light on the relationship between entry modes and firm performance over time. It argues that full acquisitions outperform partial acquisitions based on an integrative approach of Transaction Cost Theory (TCT) and Resource Based View (RBV) antecedents. Moreover, it investigates underlying firm-specific drivers which might moderate the focal relationship. To be precise, it advocates for a moderating effect of firm innovativeness. The results indicate that full acquisitions indeed outperform partial acquisitions in the short term. However, in the long term, this statement cannot be supported due to insignificant results. Unfortunately, this study does not find statistical evidence for a moderating relationship of firm innovativeness. Through integrating TCT and RBV antecedents to explain the effects of entry mode decisions, this study provides valuable insights for IB literature. Furthermore, this study provides insights for future research avenues which can further advance our understanding.

Key words: entry modes, firm performance, transaction cost theory, resource-based view, firm

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1. Introduction

The effects of globalization have been characterizing the major part of the world economy in the twenty-first century. Within the International Business (IB) environment, this led to the establishment of the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA) and many other trade agreements. These establishments have caused an upward trend in cross-country activity of firms, which ultimately reached its peak in 2015 (World Investment Report, 2018). Typically, a firm can have different reasons to enter a foreign market. Dunning (1988) distinguished these into four main pillars: market seeking, efficiency seeking, natural resource seeking and strategic resource seeking. Firms face an important strategic decision when it comes to determining the optimal strategy in order to grasp the opportunities present in the foreign market. International Business (IB) literature has characterized this strategic decision as the decision which entry mode to pursue and refers to this as the strategies implemented to enter a foreign market (Hill, Hwang and Kim, 1990). The raising importance and pace of globalization has led to increased pressures for firms to adhere to these changes and design their operations to optimize efficiency and attain high firm performance. Subsequently, this has evoked numerous studies on entry modes effects by IB scholars, which have been characterizing entry mode research for more than 30 years (Zhao, Ma and Yang, 2017).

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importance that a firm chooses the most appropriate entry mode, as this ultimately affects performance. Hence, addressing the research gap of which entry mode yields the highest performance is imperative.

Drawing upon TCT and the Resource Based View (RBV), this study aims to address the research question which type of entry mode, and more specifically which type of international acquisition (partial versus full) mode, yields the highest firm performance over time (Chen, 2008). To answer this research question, this study argues, from an integrative approach of TCT and RBV antecedents, that full acquisitions outperform partial acquisitions. Next, this study argues from an RBV perspective that firm innovativeness moderates the focal relationship. Firm innovativeness represents an indicator of the firm its ability to adjust to local circumstances, which plays an important role in the contributing to firm performance abroad.

The contribution of this study is fourfold. The first, and main, contribution of this study is that it sheds light on which international acquisition mode performs best. Second, it contributes to widening our knowledge on integrating two main perspectives in entry mode research. So far, prior literature does not propose a vast number of integrative approaches including TCT and RBV antecedents to assess the performance of entry modes. Three, it examines two specific entry modes in its research design to circumvent entry mode research criticism (Dikova and Brouthers, 2016). Lastly, it proposes firm innovativeness as a moderating factor in the relationship between entry mode decisions and performance, and with that highlights firm-specific drivers influencing the relationship.

Using a sample of 253 international acquisitions from US firms expanding into 20 distinct countries in Europe and Asia, this study highlights which international acquisition strategy yields the highest performance. Among the sample firms, six different industries can be identified and its effects will be examined on the focal relationship. The sample constitutes international acquisitions dating from 2015 and assesses the performance of the expanding firms in the year 2016, 2017 and 2018. In doing so, this study can generate valuable empirical insights to the IB literature on the effects of entry mode decisions over time.

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2. Literature Review

2.1 Internationalization

The increasing pace of globalization and amounts of free trade agreements have made it easier for firms to expand to foreign markets and grasp the opportunities presented there (Brouthers and Hennart, 2007; World Investment Report, 2018). Although penetrating foreign markets can be beneficial, firm internationalization may present severe challenges. These challenges might be explained by the uncertainty caused by outsidership that goes along with expanding abroad (Johanson and Vahle, 2009). Rugman and Verbeke (2003) typically explained outsidership as liability of foreignness (LOF) and encompasses the costs of a firm when not operating in their domestic market. To minimize these costs, firm level strategies should be tailored towards each market the firm is expanding to. Each of those firm-level strategies require different resources which need to be transferred, in order to take advantage of the opportunities abroad in the form of achieving economies of scale or increasing firm productivity (Kogut, 1985). This is essential, as Gomes and Ramaswany (1999) find that increasing internationalization leads to improved firm performance up until a certain threshold where after profits begin to decrease and associated costs increase. Hence, every market should be assessed individually in terms of how to optimally enter, in order to generate the highest possible firm performance.

2.2 Entry modes

Once a foreign market opportunity is identified and the firm level strategy of internationalization is developed, the biggest challenge for firms is determining the most desirable mode of entry for each market. Prior literature has defined entry modes as the methods implemented and operations deployed in order to enter a foreign market (Hill et al., 1990). Entry modes decisions deal with the issues of designing the firm in such a way that it can enter a foreign market successfully (Brouthers and Hennart, 2007). Otherwise stated, it includes the decision in which way the firm is going to enter the foreign market.

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continuum (Brouthers and Hennart, 2007). Resulting from these continuums, four types of entry modes can be identified: wholly owned greenfields, wholly owned (or full) acquisitions, joint venture greenfields, and partial acquisitions. Greenfield modes of entry refer to building up a new firm from scratch whereas an acquisition refers to buying a subset or full part of another local firm (Hennart, 2009). Brouthers and Hennart (2007) classified the distinction between partial- and full acquisitions as a difference in ownership structures. In a full acquisition, the investing firm has full equity ownership of the target firm, whilst in a partial acquisition the equity ownership is shared with one or more parties. This study will focus on the effects of partial- and full acquisitions on firm performance and the effects of innovativeness as a moderator in this relationship. With that, this study follows prior literature, as focusing on a comparative study within one continuum has been advocated for (Brouthers and Hennart, 2007; Zhao et al., 2017).

Each entry mode entails specific benefits and risks, making it an important strategic decision (Chang and Rosenzweig, 2001). Selecting the right entry mode and the proper organization is of vital importance as prior studies argue that the entry mode decisions are difficult to adjust once they are established (Pedersen et al., 2002). This means that if the chosen entry mode turns out to be not suitable, benefits from the entry mode might not be fully exploited. Subsequently, firm performance can be hampered. Next to that, foreign expansions require a significant investment, which is hard to get back, without incurring a loss on the investment, when the expansion fails (Reus and Lamont, 2009). Hence, entry modes decisions are important strategic decisions for an internationalizing firm with long-term consequences.

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2.3 Transaction cost theory

The origin of transaction costs theory (TCT) lie at the end of the previous century, when Williamson (1985) composed a three-factorial framework influencing transaction costs for the firm. The main consideration in TCT is based on the notion that firms choose the governance structure which minimizes the sum of transaction costs (Zhao et al., 2004). Examples of transaction costs in the international expansion context include the costs of adaption, performance monitoring and liability of foreignness (Zhao et al, 2004; Rugman and Verbeke, 2003). On the one hand, a firm which encounters low transaction costs in the market it wants to enter, will prefer its transactions to be preferred by the market as these are in this scenario the most-efficient (Zhao et al., 2004). The entry mode will be aligned accordingly and entry modes such as exporting might be most efficient and minimizes transaction costs in this scenario. On the other hand, high transaction costs opt for the choice of a more hierarchical structure of governance, where levels of control are higher (Zhao et al., 2004). An example of such an entry mode is the wholly owned subsidiary (WOS). Following this line of reasoning, it can be said that the higher the transaction costs of a firm when entering a market, the more likely a firm is to adopt an intensive control governance structure, such as full acquisitions.

When assessing the degree of transaction costs of entering a specific market, three main drivers can be identified. These main drivers originate from the three-factorial framework of Williamson (1985) and consists out of asset specificity, uncertainty (internal and external) and frequency. These drivers are briefly discussed below.

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Williamson (1985) argues that the construct of uncertainty is composed out of internal and external dimensions. Internal uncertainty refers to the situation where a firm is unable to accurately assess the performance of the partnering agent with the agreed measurement metrics (Anderson and Gatignon, 1986). Furthermore, prior literature has expanded this factor with the firm its lacking experience or knowledge about the partnering agent (Zhao et al., 2004). External uncertainty deals with the uncertainties arising from the environment where the firm is operating in (Williamson, 1985). In order to deal with these uncertainties, the firm must know the key characteristics, such as volatility of the environment (Miliken, 1987). Both types of uncertainty create the urgency for firms to monitor behavior of the partner firm to prevent opportunistic behavior. Monitoring such opportunistic behavior is time-consuming and foremost, increases transaction costs (Gulati, 1995). When taking into account the consequences of these uncertainties it can be said that a higher degree of both internal- and external uncertainty, leads to higher levels of transaction costs (Williamson, 1991).

Transaction frequency refers to the repetition of transactions between two parties. In Williamson’s (1985) initial framework, high transaction frequency stimulates the firm to employ high modes of control in governance structure. This is the case because overhead costs will be easier to recover when there are recurring transactions. Contrary to the first two factors, transaction frequency has been given a limited amount of attention in prior literature (Rindfleisch and Heide, 1997; Geyskens, Steenkamp and Kumar, 2006). Despite the fact that prior literature has been giving limited attention to this factor, it is still and important factor to consider in the decision process of entry modes, as entry modes are often established with the intent of high transaction frequency (Brouthers and Hennart, 2007).

From the antecedents of TCT it can be inferred that higher levels of asset specificity, uncertainty and frequency lead to increased levels of transaction costs. As a result, following TCT arguments, firms will prefer higher forms of control within entry mode decisions (Brouthers and Hennart, 2007). Such entry modes mitigate high transaction costs and directly influence the profitability of the firm (Schrader, 2001)

2.4 Resource-based view of the firm

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The RBV is originally developed by Barney (1991) and suggests that firms should develop unique firm-specific resources, so that they become resource-based advantages and can be exploited in its operations. The author argues that firms develop these resource-based advantages by developing firm-specific resources which are valuable, rare, non-imitable and non-substitutable. Subsequently, a firm can develop a sustainable competitive advantage when a firm is able to develop such resource-based advantages (Barney, 1991). From this, the firm is able to benefit from the heterogeneous set of resources it possesses, which can be fitted together with the benefits of a specific entry mode (Chang and Rosenzweig, 2001). In other words, this suggests that achieving sustainable competitive advantages, influence the decision-making processes in entry modes as each entry mode requires different resources (Chang and Rosenzweig, 2001). In the past years, the RBV has been given considerate amounts of attention in the field of entry modes research (Dikova and Brouthers, 2016), given that a firm can use its firm-specific resources in a foreign market.

Firm-specific resources have been explored well in entry mode research. Among the first to essentially apply the RBV to the IB context, were Johanson and Vahlne (1977). Their argument is that firms gain experience in entering foreign markets over time and move from simple entry modes (e.g. exporting), to more complex entry modes (e.g. full acquisitions). This proposition was further developed by Erramilli (1991). The author finds that high and low levels of international experience push firms to use full control entry modes, whereas intermediate levels of international experience lead firms to use shared control entry modes when expanding. This suggests that international market entry experience is a firm-specific resource, which can be exploited and used to increase firm performance.

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Whereas on the contrary, a missing capability or resource can be acquired through an acquisition. Accessing such complementary resources can lead to an increased competitive advantage (Lavie, 2006), which is positively associated with firm performance.

2.5 Combining the RBV and TCT: An integrative approach

In a recent meta-analysis by Dikova and Brouthers (2016), it was found that 15 different theories have been used when examining entry mode decisions. This suggests that the research field of entry modes decisions is severely fragmented. Accordingly, entry mode decisions and its effects can be explained by a variety of individual theories such as TCT and RBV, which is outlined in the previous paragraphs. Controversially, this means that one single theory cannot fully explain entry mode decisions in general. Moreover, specific consequences of entry mode decisions cannot be clearly examined using one theoretical stream, as prior literature provides mixed evidence regarding varying levels of firm performance (Zhao et al., 2017). Therefore, a combination of theoretical foundations might be the best way forward to fully explain the decisions and subsequent firm performance of entry modes. This is supported by several previous studies who suggest this approach for future research (Dikova and Brouthers, 2016; Brouthers and Hennart, 2007).

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perspective, transferring intangible assets is time-consuming and challenging, which can be best overcome with high-level control entry modes (Choi and Parsa, 2012). This is consistent with the main theorem in TCT, where increased transaction costs as a consequence of time-consuming asset transfers, lead to higher modes of control. This shows that even when looking through an RBV lens, the TCT antecedents can be applied. Meaning that both are interlinked and could be used simultaneously to explain the effects entry mode decisions.

This study follows the major stream of current literature and builds on the assumption of the RBV that developing firm-specific resources and capabilities are a key driver of entry mode decisions (Dikova and Brouthers, 2016). Similarly, it also acknowledges the importance of cost minimization in the process of entry mode decisions, which is the key rationale in TCT (Williamson, 1985). Although both theories are built around distinct assumptions, the constructs can be integrated regarding the effects of entry mode decisions. The argument here is that transaction cost minimization and resulting cost-efficiency, can be classified as a firm-specific capability which could be developed. From such a firm-firm-specific capability, the firm can develop a sustainable competitive advantage, which leads to enhanced firm performance. This statement is supported by prior literature as both the RBV and TCT are interlinked (Brouthers and Hennart, 2007; Brouthers and Brouthers, 2003). While on itself, transaction costs minimization results in a relatively higher firm performance, the resulting cost efficiency capability can be used in the overall operations of the firm, enhancing firm performance as well.

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2.6 Entry modes - Firm performance

Although there is a big part of current literature which focuses on the predicted decisions of entry modes, the question whether different entry modes lead to a higher performance structurally remains unanswered. However, there seems to be an opening door towards the assessment of the relationship as prior studies argue that future research should focus on examining two specific entry modes in relation to performance (Zhao et al., 2017; Kogut, 1988). To make sure that this study does not suffer from such a too-wide scope in the research area, this study focuses on full- versus partial acquisitions (Dikova and Brouthers, 2016; Chen, 2008). Following the rationales highlighted in the previous section by integrating an TCT and RBV perspective, this study outlines the arguments for high levels of performance at higher levels of acquired stakes in the foreign firm below.

The first argument that can be made to explain why higher levels of percentage acquired lead to relatively higher levels of firm performance, can be found in the roots of TCT. In general, higher degrees of transaction costs reduce firm performance (Williamson, 1985). On top of that, transaction costs have been shown to negatively affect firm profitability (Schrader,2001). The main reason why higher levels of acquired stakes lead to higher levels of firm performance, lies in the transaction costs resulting from uncertainty of opportunistic behavior. Chen & Chen (2003) argue that higher degrees of uncertainty, should lead the firm to acquire higher the levels of stakes, to prevent opportunistic behavior (Williamson, 1985). This suggests that the uncertainty of opportunistic behavior is higher in partial acquisitions. As a result, monitoring costs increase due to the mechanisms implemented to prevent opportunistic behavior of the partner firm. Increased monitoring costs on its turn decrease firm performance. An example of such a mechanism can be a specified contract, preventing opportunistic behavior (Chen & Chen, 2003). However, specifying such contracts can be labor-intensive and costly, decreasing firm performance (Oxley, 1998). Controversially, monitoring costs are less profound at higher levels of acquired stake because of the self-enforcement mechanisms that a firm can implement to prevent opportunistic behavior (Dyer & Sing, 1998). As a result, firms face less uncertainty, and subsequent costs, due to the nature of the acquisition. This suggests that high levels of acquired stakes lead to higher levels of firm performance.

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higher levels of acquired stakes (e.g. WOS), motivate investing firms to commit more firm-specific resources and capabilities and as a consequence, firm performance increases (Luo, 2003). Furthermore, transferring resources and capabilities does not only positively influence firm performance but also increases collaboration productivity between the investing and acquired firm (Li, Zhou and Zajac, 2009). This can further increase firm performance, suggesting an amplifying effect. This is supported by other studies as well, such as Balsvik and Haller (2011), who find that full acquisitions have a positive impact on the human resources productivity of a firm. Moreover, when a firm is less-reluctant in transferring these firm-specific resources abroad, which is the case at higher levels of acquired stakes, it is expected to have a better performance (Chang et al., 2013). Aforementioned examples show that increasing levels of resource commitment increase with higher levels of acquired stakes, while decreasing at lower levels of acquired stakes. Resulting from increased resource commitment, firm-specific resources and sustainable competitive advantages can be developed easier (Barney, 1991). For instance, Delios and Beamish (2004) find that increased resource commitment leads to more advanced foreign technology and higher productivity, which benefits firm performance. Furthermore, increased resource commitment of the acquiring firm leads to higher opportunities for optimal resource alignment with the complementary assets in the local firm (Chen & Chen, 2003). Access to complementary assets can on its turn result in sustainable competitive advantages and enhance firm performance (Lavie, 2006; Barney, 1991). Subsequently, it can be stated that higher levels of stakes acquired, lead to relatively high performance compared to lower levels of stakes acquired due to increased resource commitment of the acquiring firm.

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for partially owned subsidiaries only, industry growth has a positive impact on the likelihood of choosing acquisitions, while industry concentration has a negative impact on the probability of establishing partial acquisitions. This shows that pursuing a partial acquisition might not be a universally accepted strategy to ensure performance benefits, as it is only capable of functioning properly in specific industry characteristics.

Despite that a part of the literature relate partial acquisitions to higher levels of performance, the major part of entry mode research field seems to state that that higher levels of acquired stakes leads to higher firm performance. For example, Ramaswamy, Gomes and Veliyath (1998) found a U-shape relationship between the degree of acquisition, in the form of equity employed, and the subsequent performance. In their research, it was found that full acquisition strategies where associated with increasing performance, whereas shared ownership (partial acquisitions) showed associations with declining performance. In a completely different view, Song (2014) showed that partial acquisitions entail the highest exit rate among all four modes established by Brouthers and Hennart (2007). Therefore, a firm following the TCT reasoning will not choose a partial acquisition as shared ownership decreases performance and exit rates are relatively higher, hence higher transaction costs and lower firm performance. This suggests that partial acquisitions underperform compared to full acquisitions. Building on that, higher levels of acquired stakes are more likely to survive over time in terms of higher levels of firm performance. To combine TCT and RBV antecedents, Chang et al. (2013) find that full acquisitions perform better than partial acquisitions due to higher investment in resources, faster decision making and better control of opportunistic behavior.

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theoretical streams exhibit arguments that share the assumption of higher levels of acquired stakes leading to increasing levels of firm performance.

Taking into account the outlined arguments stemming from an integrating of TCT and RBV perspectives, the following hypothesis is developed. Here, a positive relationship between the percentage of acquired stakes and firm performance is expected. Meaning that a low percentage of acquired stakes will lead to a relatively lower firm performance over time. On the other hand, a high percentage of acquired stakes will lead to a relatively higher level of firm performance over time.

H1: There is a positive relationship between the percentage of stakes acquired and firm

performance over time.

2.7 Moderating effect of firm innovativeness

Firm specific resources and capabilities influence entry mode strategies and firm performance in general as well. This means that implementing entry mode strategies (e.g. full or partial acquisitions) does not completely explain which strategy leads to a superior firm performance. This stems from the interaction of entry modes with firm specific drivers in relationship to performance (Shaver, 1998; Tan, 2009). Subsequently, this implies that entry mode research has to look at the underlying firm-specific factors which may influence the relationship to performance as well. This holds well in the RBV as this argues that performance of the firm is influenced by firm specific resources and sustainable competitive advantages from within the firm (Barney, 1991).

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characteristics and entry mode decisions has received some attention. An example of this is the study by Hollender, Zapkau and Schwens (2017). This study finds empirical evidence for a joint moderating relationship of international experience and product adaptation on the relationship between entry mode decisions and foreign venture performance. This proves that underlying factors are at stake in the focal relationship hypothesized. Nevertheless, Dikova and Brouthers (2016) argue that more research has to be conducted in this area.

A firm-specific characteristic which has been widely acknowledged to positively influence firm performance, is innovation (Jimenez-Jimenez and Sanz-Valle, 2011). Innovation is typically described as a multifaceted construct, which includes idea generation, development and implementation formed into a product, service or behavior, which is new to the adopting firm (Damanpour, 1996). To elaborate on that, during the process of innovation, new ideas or behavioral actions are transformed into new products or services, new process technologies within the firm and new organizational structures in order to facilitate a behavioral innovation and new managerial approaches (Azar and Drogendijk, 2014). In other words, the initiation of the innovation process in a firm, fosters the adaptive behavior of the firm. This is supported by other studies as well. For instance, Kafoures, Buckley, Sharp and Wang (2008) argue that a greater degrees of firm internationalization improve firm innovativeness through the process of knowledge accumulation and increased organizational learning. This suggests that firm innovativeness is a capability a firm can develop, which can lead to sustainable competitive advantages (Johanson and Vahle, 1977; Barney, 1991). When a firm is likely to have firm innovativeness in its portfolio of capabilities, this should also be put into practice in the host country environmental context. This way, the firm can minimize the costs of entering a foreign market and diminish the effects of liability of foreignness (Rugman and Verbeke, 2003). As higher levels of acquired stakes require more embeddedness in the host country environment due to regulations, customer preference etc. (Meyer et al., 2014), firm innovativeness can foster the adaptive behavior this requires.

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levels of acquired stakes lead to more resource commitment (Luo, 2003), the adaptive capacity of the firm in terms of innovativeness is more likely to be transferred in the acquisition as well. This can cause a positive effect on adapting the committed resources to the local environment faster. As a result, liability of foreignness decreases and enables the firm to attain high performance levels (Rugman & Verbeke, 2003). Hence, it can be said that a firm acquiring higher levels of stakes will benefit from a high degree of innovativeness in relationship to firm performance, amplifying the relationship.

Nevertheless, all other things being equal, choosing a partial acquisition strategy might also encounter a positive effect of firm innovativeness due to learning opportunities. As stated in the previous part, Hennart (1988a) argues that partial acquisitions are preferred when a firm only needs a subset of the local complementary assets to learn how to survive in the host country market, which relates to possessing knowledge and other intangible assets. The adaptive behavior a firm possesses due to a high degree of firm innovativeness can help the firm accumulate such knowledge. Nevertheless, firms encounter lower levels of knowledge possession due to the shared nature of partial acquisitions and potential opportunistic behavior (Williamson, 1985). As firms commit fewer resources to partial acquisition strategies, firm innovativeness shows less significant impact in relation to firm performance. The rationale for this is that firm innovativeness might not be fully transferred as the acquiring firm wants to prevent the partner from learning too much (Holmberg and Cummings, 2009). At higher levels of acquired stakes this might not be the case as there is less danger of unintentional knowledge appropriation by the partner firm (Inkpen, Minbaeva and Tsang, 2019). Therefore, it can be concluded that firms acquiring higher levels of stake benefit more from a high degree of firm innovativeness in relation to performance.

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achieve a higher firm performance but less compelling compared to high levels of percentage of acquisition. Hence the following hypothesis can be identified:

H2: The relationship between acquired stake and firm performance is positively

moderated by firm innovativeness.

A visual representation of the conceptual model and the hypotheses is depicted in Figure 1.

Figure 1: Conceptual model

Acquired Stake Firm Performance

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3. Methodology

3.1 Sample

Entry mode research has predominantly been using cross-sectional samples in order to examine the effects of entry mode decisions as shown in a recent study by Zhao et al. (2017). Therefore, this study will make use of such a dataset as well to validate its relevancy in the research field. The sample consists out of individual firm level data in order to grasp a realistic image of the business environment.

The sample was selected by using the data available in the databases of Zephyr and Orbis. The individual data for acquired stakes was obtained through Bureau van Dijk its database Zephyr. This database has been used by prior literature as well by for instance Boellis, Mariotti, Minichilli and Piscitello (2016). The data for all other variables was obtained through the most widely used database of Bureau van Dijk, Orbis. As well as Zephyr, Orbis has been used extensively by scholars such as Brouthers (2002).

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The next step in the sample selection procedure was the extraction of data from Orbis. From this database, the data for the variables firm size, firm age, firm performance and firm innovativeness are generated. Unfortunately, due to a severe lack of data on all the variables in this framework within the database of Orbis, 716 observations needed to be dropped. As a result, 322 observations remained with to some extent data. However, after thorough analysis and calculation of variables where possible, the sample size decreased to 253 observations with full data availability. Hence, in order to test the hypotheses mentioned in the previous section, this study will analyze 253 international acquisitions dating from the year 2015.

After the reduction of observations, the number of host countries decreased as well. As mentioned, the initial number of countries was 43 while after data reduction the number of remaining host countries was 20. These countries include Belgium, Switzerland, China, Germany, Denmark, Spain, France, Great Britain, Hong-Kong, Indonesia, Ireland, Italy, Japan, Korea, Luxembourg, Netherlands, Norway, Romania, Turkey and Vietnam.

In terms of industries, this study does not propose a single industry as guideline for the results. Rather, it proposes a general view of the business environment and industries which allows for cross-industry comparisons. This is supported by prior literature as Zhao et al. (2004) find that TCT is applicable to all firms in all industries in entry mode research. This improves the reliability and generalizability of the study and expected outcomes of the analysis. The industries included are: Mining and Construction, Manufacturing, Transportation, Communication and Electric, Retail Trade, Finance and Insurance, and Services.

3.2 Independent variable: Entry modes

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Chen (2008) its research design. In order to have a statistically relevant study, the operationalizing variable for entry modes will be based on the percentage of equity taken by a domestic firm (US) in a foreign firm. This variable can range on a scale from 0 to 100 with two decimals. As this will be a continuous value, the results will represent a fine-grained perspective on the effects of the entry modes taken and its effects on firm performance.

In order to present a validate test for the hypothesis, this variable will also be coded into a dummy variable which distinguishes partial- to full acquisitions and a separate robustness test will be conducted. This approach has been used in extant literature by for example Hollender et al. (2017) and serves as a valid proxy for entry mode decisions. Partial acquisitions (<95%) will be coded as “0” and full acquisitions (>95%) as “1”. Both proxies for this variable will be taken at the single point in time of the transaction, namely 2015. This point in time represents the year in which the acquisition is completed.

3.3 Dependent variable: Firm performance

Firm performance has been a major construct which has been used in academic research for multiple decades. The most commonly used operationalization of firm performance is the Return on Assets (ROA) (Chen,2008). ROA is measured by dividing firm net income by firm total assets. Prior literature has been arguing that transaction costs as a component in TCT directly influences the profitability of a firm (Schrader, 2001). This means that the antecedents of transaction costs, which influence the entry mode also influence the performance relatively to the percentage taken into the firm. This rationale has led the major part of the current literature use ROA as the proxy for profitability (Zhao et al., 2017) in entry mode research. To follow this major stream in IB literature, ROA will be used in order to assess the performance of the firm (Chen,2008). As ROA is a financial metric, it can be said that the performance of the firm in this study can be seen as financial performance.

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value which can either be positive or negative where a lower value implies a lower firm performance.

3.4 Moderating variable: Firm innovativeness

In order to measure the dependent variable within this study, several options are available. First of all, prior literature has opted for a patent count as the most important indicator of a firm innovativeness (Hsu, Lien and Chen, 2015). However, the use of patent counts has been debated in prior literature and it argues that this operationalization is not fully representative for innovation. Following that line of reasoning, R&D intensity might be a more comprehensive construct in order to operationalize the degree of innovation (Kafoures et al., 2008). However, this proxy can be used for multiple constructs and underestimates the unique skills of a firm (Slangen and Hennart, 2007; Zhao et al., 2004). Suggesting that this operationalization does not fully align with the aim of this study to represent the capabilities of the firm to adjust to local circumstances and attain a high firm performance. As a patent count shows the ability of a firm to adapt to needs for products or services, it is used as the measurement proxy for firm innovativeness.

The data for this variable will be based on the patent count of the acquiring firm in 2015. As we argue that this helps the firm attain a high performance, the extent to which a firm is able to innovate should be taken into account at the same point in time, the year 2015. The moderating effect of the variable is examined by calculating an interaction term between the entry mode and firm innovativeness. To do this, the percentage acquired is multiplied by the patent count of the firm.

3.5 Control variables

This study will include several control variables in order to assess the effects of the independent variable on the dependent variable. It is important to include such control variables to improve the model. The control variables included might affect the performance attained by the acquiring firm.

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country environment affects several firm strategies and objectives, such as firm performance. To control for the country of destination effect, three control variables are entered in the model. This study follows prior literature and includes the Gross Domestic Product per Capita in the host country of 2015 as the first control variable for country of destination effects (Boellis et al., 2016). This data is retrieved from the World Bank (2015a). The second control variable for this effect is the geographic distance from the US to the host country. Increased geographical distance hampers the firm’s ability to attain a high performance (Berry, Guillen and Zhou, 2010) and should therefore be included as a control variable. Data for this variable is measured in kilometers and retrieved from DistanceFromTo. The third and last variable to control for country of destination effects is the degree to which it is easy to conduct business in the local environment. The harder it is to conduct business in the external environment, the harder it is to attain a high performance for expanding firms (Berry et al., 2010). The data for this control variable is retrieved from the World Bank (2015b) and measured on a scale from 1-100. All control variables mentioned here are measured at the same year of the acquisition, 2015.

The second distinct control variable includes the variable for industry effects. With that, this study follows prior literature (Brouthers, 2002). There are several industries a firm in the sample can be classified to as mentioned in the ‘Sample’ section. The importance of controlling for industry effects is stressed by Waddock and Graves (1997), who state that performance differs among industries. This study will control for industry effects by creating a dummy variable for the industries. Here, the manufacturing industry serves as the reference base to explain the effects of industries on firm performance.

Third, prior literature suggests that firm age might influence cross-national operations and firm performance (Zahra, Ireland and Hitt, 2000). The authors argue that firm experience resulting from firm age might help the firm attain a high performance. Therefore, firm age will be included as a control variable. This variable is computed by subtracting the date of incorporation from the year the transaction was completed, 2015 and deriving the logarithmic function (Brouthers, 2002).

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performance (Inkpen and Beamish, 1997). Hence, it is included as a control variable by taking the logarithmic function of the firm its operating revenue in 2015.

3.6 Analysis

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4. Results

4.1 Descriptive statistics

After putting together the variables at stake, the analysis was conducted to examine the hypotheses. Table I reports the means, standard deviations, variance inflation factors (VIF) and correlations of all variables included in the analysis. By means of the reported results in Table I, this study conducts a multicollinearity test. The correlations reported in Table I represent the first of this test and there would be an indication of multicollinearity if any of the correlations are r > 0.9 in absolute terms. Since the highest correlation within the matrix is r = -0.81 between ‘Finance & Insurance’ and ‘Entry Mode’, there is no initial indication of multicollinearity among the variables. The second test to control for multicollinearity issues are the VIF values reported in Table I. If the VIF value of a particular variable exceeds 10, there is strong evidence of a multicollinearity issue (Marquardt, 1970). However, it can be inferred from Table I that none of the variables entered in the model attain such a high level. Concluding from these tests, multicollinearity is not an issue in this dataset, hence the OLS regression can be used.

A striking observation when looking at the descriptive statistics is the mean for entry mode. This shows that the average percentage a firm acquires of a foreign firm abroad is slightly higher than 75%. This is mainly due to the acquisition deals expanding to the United Kingdom by US firms, as the mean of these acquisitions is 96,91% (N = 64). Nevertheless, the high mean suggests that US firms have a tendency to engaging in full acquisitions. In order to check the results after the initial analysis a robustness test excluding The United Kingdom expansions

Table I. Descriptive statistics and correlations (N=253)

Variables Mean SD VIF 1 2 3 4 5 6 7 8 9 10 11 12 13

1. Entry Mode 75,63 40,12 3,61 1 2. Innovation 2344,38 9952,41 1,22 ,14* 1 3. Firm Age 3,05 1,15 1,31 -,23** ,13* 1 4. Firm Size 15,20 2,02 1,56 -,25** ,30** ,36** 1 5. Firm Performance 3,65 7,74 - 0,08 ,13* ,19** ,32** 1 6. GDP per Capita 43549,64 15305,41 1,73 -0,05 0,06 -0,08 ,14* 0,10 1 7. Doing Business 77,25 5,09 1,54 ,19** 0,03 -,17** -0,07 0,12 ,51** 1 8. Geographic Distance 6835,87 1716,47 1,5 -,13* -0,04 0,04 -,14* -0,08 -,47** -,31** 1 9. Mining & Construction 0,00 0,06 1,19 -0,08 -0,01 -0,05 -,22** -0,01 0,00 0,1 ,23** 1 10. Transportation 0,03 0,18 1,1 0,06 -0,04 -,16** -0,03 0,00 0,05 -0,03 0,00 -0,01 1 11. Wholesale & Retail Trade 0,07 0,25 1,16 0,09 -0,06 -0,03 0,11 -0,09 -0,04 0,08 0,00 -0,02 -0,05 1 12. Finance & Insurance 0,29 0,45 3,59 -,81** -,15* ,15* ,24** -0,04 0,11 -0,09 -0,05 -0,04 -0,12 -,17** 1 13. Services 0,18 0,39 1,28 ,27** -0,01 -,25** -,28** -0,12 -0,06 0,04 -0,01 -0,03 -0,09 -,13* -,30** 1

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will be conducted. This also examines the effects of a more balanced sample. Another noteworthy value from Table I is the mean for the ‘Doing Business’ variable of 77,25. This value means that the general tendency of the ease of doing business in the sample is particularly high. Hence, confirming the rationale for the high levels of inward FDI in these countries (World Investment Report, 2018).

As this study deals with some binary values for the dummy variables, table II represents an overview of the frequencies of the dummy variables within the dataset. From the table we can infer that the amount of Partial Acquisitions is 74 relatively to 179 Full Acquisitions within the sample, providing this study with a fairly balanced sample. Nevertheless, by conducting the robustness test of omitting the acquisitions to The United Kingdom, this study examines an even more balanced sample. Having a look at the several industries within the sample, the Finance & Insurance industry dominates the sample and includes more than a quarter of the firms involved in the acquisitions of 2015. While on the other end, the Mining & Construction industry seems to be underrepresented within the sample. The analysis of the host countries that the US-based firms are entering, shows that the countries in Europe are the main target countries for expansion, covering more than 90% of the sample.

4.2 Regression results

The first hypothesis studies the relationship between the independent variable, the percentage a US-based firm acquires of a foreign firm, and the dependent variable, the resulting firm performance. The focal relationship is expected to be positively correlated, meaning that a higher percentage acquired leads to a higher firm performance and this high firm performance lasts over time. The second hypothesis studies the focal relationship as well and examines how

Table II. Absolute and Relative Frequencies

Variables Absolute Frequency Relative Frequency

1. Partial Acquisition 74 29,20%

2. Full Acquisition 179 70,80%

3. Mining & Construction 1 0,40%

4. Transportation 8 3,16%

5. Wholesale & Retail Trade 17 6,72%

6. Finance & Insurance 73 28,85%

7. Services 46 18,18%

8. Europe 229 90,51%

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it is affected by the moderator, the firm innovativeness of the US-based firm. Here, it is expected that a high degree of innovativeness amplifies the relationship of percentage acquired and firm performance so that higher levels of acquisitions lead to even higher levels of firm performance.

Table III reports the outcomes for the OLS linear regression analysis. The base model in this study is Model 1, which includes the control variables Firm Size, Firm Age, GDP Per Capita, Doing Business, Geographic Distance and Industry effects and their subsequent effects on the dependent variable, Firm Performance. In order to test the first part of the first hypothesis between the independent and dependent variable, Model 2 is used. Here, the variables Entry Mode and Innovativeness of the firm are added to examine the effects on the dependent variable, Firm Performance. The results show that there is slightly positive significant (ß= 0,036, p<0,10) relationship between Entry Modes and Firm Performance. Since the relationship is significant, it can be assumed that there is a relationship between the percentage acquired and firm performance in 2016. Meaning that a higher percentage acquired indeed leads to a higher firm performance. Consequently, this leads to the statement that the first hypothesis is initially supported. Model 4 and 5 report the second part of the first hypothesis, regarding the statement that the high firm performance lasts over time. In Model 4 and 5, the effects are regressed on the Firm Performance in 2017 and 2018 respectively. As can be inferred from Table III, Model 4 reports a marginal insignificant (ß= 0,001, p>0,10) relationship between Entry Modes of 2015 and Firm Performance in 2017. Similarly, Model 5 reports an insignificant (ß= 0,015, p>0,10) relationship between Entry Modes of 2015 and Firm Performance in 2018. As a result, the second part of the first hypothesis is not supported. Hence, the first hypothesis is only partially supported. On top of that, the significance in Model 3 is at the lowest level, suggesting only marginal significance of the first hypothesis as well.

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While the majority of the control variables report an insignificant relationship to Firm Performance, some variables structurally show significant relationships with Firm Performance. Table III shows that in all five models, Firm Size shows a strongly significant positive relationship to firm performance (p<0,01). This indicates that the larger a firm gets, the higher the resulting firm performance. Confirming the expectations of prior literature (Contractor, 1984; Inkpen and Beamish, 1997). On top of that, across Model 2-5, firm age

Table III. Hypothesis testing models (N=253)

Independent variables Model 1 Model 2 Model 3 Model 4 Model 5

Constant -34,853 -39,047 -39,277 -29,026 -47,926 (9,694)*** (10,0114)*** (10,034)*** (10,562)*** (15,966)*** Firm Size 1,314 1,400 1,427 1,280 2,533 (0,260)*** (0,277)*** (0,281)*** (0,297)*** (0,448)*** Firm Age 0,637 0,775 0,784 0,913 1,618 (0,440) (0,446)* (0,447)* (0,470)* (0,711)** GDP Per Capita 0,000 0,000 0,000 0,000 0,000 (0,000) (0,000) (0,000) (0,000) (0,000) Doing Business 0,243 0,213 0,208 0,176 0,208 (0,108)*** (0,109)* (0,110)* (0,116) (0,175) Geographic Distance 0,000 0,000 0,000 0,000 -0,001 (0,000) (0,000) (0,000) (0,000) (0,001)*

Mining & Construction 5,571 8,181 8,098 3,404 19,747

(7,649) (7,777) (7,790) (8,199) (12,394)

Transportation -0,132 0,183 0,175 0,306 1,400

(2,673) (2,683) (2,687) (2,828) (4,275) Wholesale & Retail Trade -5,255 -5,063 -5,118 -6,028 -5,167

(1,896)*** (1,924)*** (1,929)*** (2,031)*** (3,070)* Finance & Insurance -2,869 -0,485 -0,478 -1,010 -2,718

(1,111)** (1,871) (1,874) (1,972) (2,981)

Services -1,605 -1,480 -1,478 -2,368 -4,446

(1,312) (1,311) (1,313) (1,382)* (2,090)**

Entry Mode (EM) 0,036 0,036 0,001 0,015

(0,021)* (0,0213)* (0,022) (0,034) Innovativeness 0,000 -0,002 -0,005 -0,002 (0,000) (0,004) (0,005) (0,007) EM * Innovativeness 0,000 0,000 0,000 (0,000) (0,000) (0,000) F-Statistic 5,192*** 4,601*** 4,259*** 3,994*** 5,913*** R-Sqaured 0,177 0,188 0,189 0,179 0,244

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shows a positive significant (p<0,10) relationship to firm performance. Although this significance is marginal, this implies that the older the firm becomes, the higher the firm performance will be. The ease of Doing Business also reports a significant relationship (p<0.10) with Firm Performance in Model 1-3. This suggests that the ease of Doing Business is of crucial importance in early stages of expanding. Lastly, the Wholesale & Retail Trade industry shows a negative significant relationship (p<0,10) to Firm Performance. This means that firms operating in this industry can expect a significantly lower firm performance compared to firms in the Manufacturing industry, which is the baseline dummy in this model.

As can be seen in Table III, the R-squared value for the first hypothesis in Model 2 is 0,188. This means that 18,80 per cent of the variability in Firm Performance is explained by the independent variables in Model 2. This suggests that the variables included do a fairly decent job explaining the variability of Firm Performance in 2016. However, this decreases when examining the explained variability of Firm Performance in 2017 as Model 4 indicates a R-Squared value of 0.179. The best explained variability of the model can be found in Model 5, as the explained variability of Firm Performance in 2018 indicates 0.244. The R-squared value for hypothesis 2 in Model 3, indicates 0,189. This slight increase of 0,1 percent in explained variance compared to Model 2 shows that Model 3 is a marginally better fit to the dataset.

4.3 Robustness tests

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Modes and Firm Performance in 2017 and 2018. This supports the initial statement that Firm Performance is not influenced by Entry Modes of 2015 in the long run. Nevertheless, the robustness test confirms that Entry Modes influence the Firm Performance in 2016 in a positive way accordingly with the first hypothesis. Hence, higher levels of acquisitions lead to higher levels of Firm Performance. This strengthens the statement of the partial confirmation of the first hypothesis.

_{Table IV. Robustness tests dummy variable (N=253)}

Independent variables Model 6 Model 7 Model 8

Constant -39,079 -28,805 -46,173 (10,004)*** (10,537)*** (15,925)*** Firm Size 1,427 1,273 2,251 (0,281)*** (0,296)*** (0,447)*** Firm Age 0,742 0,895 1,548 (0,443)* (0,467)* (0,706)** GDP Per Capita 0,000 0,000 0,000 (0,000) (0,000) (0,000) Doing Business 0,215 0,000 0,223 (0,109)* (0,115) (0,174) Geographic Distance 0,000 0,000 -0,001 (0,000) (0,000) (0,001)**

Mining & Construction 7,804 3,532 18,613

(7,746) (8,159) (12,330)

Transportation 0,430 0,305 1,180

(2,703) (2,847) (4,302)

Wholesale & Retail Trade -4,727 -6,016 -5,385 (1,964)** (2,069)*** (3,127)*

Finance & Insurance -0,884 -1,042 -3,941

(1,679) (1,769) (2,674) Services -1,555 -2,373 -4,506 (1,311) (1,381)* (2,087)** Entry Mode 2,872 -0,005 -0,259 (1,688)* (1,778) (2,688) Innovativeness -0,001 -0,002 -0,002 (0,002) (0,002) (0,003)

Entry Mode * Innovativeness 0,001 0,002 0,001

(0,002) (0,002) (0,003)

F-Statistic 4,276*** 3,977*** 5,906***

R-Sqaured 0,189 0,178 0,244

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Additionally, the robustness test allowed for validating the rejection of the second hypothesis. Throughout Model 6-8 the interaction term between Entry Mode and Innovativeness report insignificant (p>0,10) results. This confirms the rejection of the second hypothesis that Firm Innovativeness moderates the relationship between Entry Modes and Firm Performance.

Similar as to the effects in Model 1-5, Firm Size, Firm Age and the Wholesale & Retail Trade industry show a significant (p<0.10) relationship in Model 6-8. This suggests that aforementioned variables might play a substantial role in explaining Firm Performance over the years.

As mentioned in the ‘Descriptive Statistics’ section, the mean of the sample is considerately high. This is mainly due to the nature of the Entry Mode towards The United Kingdom. 62 out of 64 acquisitions can be classified with the label ‘Full Acquisitions’, which is a fairly unbalanced sample. As expansions to The United Kingdom encompass 64 out of 253 observations, its impact on the sample descriptive statistics and results is fundamentally high. Therefore, to construct an even more balanced sample, a robustness test is conducted with the expansions to The United Kingdom omitted in the analysis. The results of this robustness test are reported in Table V. Model 9-11 report the effects of Entry Modes on Firm Performance in 2016, 2017 and 2018 respectively. Contrary to the expectations, Model 9 reports a slightly positive insignificant (ß= 0,037, p>0,010) relationship between Entry Modes and Firm Performance. This means that US-based firms expanding to The United Kingdom attain relatively high levels of Firm Performance in 2016. However, the results in Model 10 and 11 do confirm the statement that Entry Modes do not impact Firm Performance over the course of the years.

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that there does not seems to be a moderating relationship of firm innovativeness. Suggesting other factors might be at play in the focal relationships.

Table V. Robustness test The United Kingdom (N=189)

Independent variables Model 9 Model 10 Model 11

Constant -44,494 -34,6 -56,654 (11,181)*** (12,566)*** (18,160)*** Firm Size 1,441 1,411 3,099 (0,331)*** (0,372)*** (0,537)*** Firm Age 0,889 1,411 0,991 (0,538) (0,372) (0,873) GDP Per Capita 0,000 0,000 0,000 (0,000) (0,000) (0,000) Doing Business 0,291 0,263 0,354 (0,123)** (0,139)* (0,201)* Geographic Distance 0,000 0,000 -0,001 (0,000) (0,000) (0,001)**

Mining & Construction 7,989 3,439 19,469

(7,809) (8,775) (12,682)

Transportation 1,712 0,382 0,411

(3,109) (3,494) (5,050)

Wholesale & Retail Trade -7,719 -7,713 -8,155 (2,313)*** (2,599)*** (3,756)**

Finance & Insurance 0,105 -1,413 -6,661

(2,677) (3,009) (4,348) Services -2,002 -2,513 -8,475 (1,569) (1,764) (2,549)*** Entry Mode 0,037 -0,01 -0,02 (0,029) (0,032) (0,047) Innovativeness -0,001 -0,004 -0,001 (0,004) (0,005) (0,007)

Entry Mode * Innovativeness 0,000 0,000 0,000

(0,000) (0,000) (0,000)

F-Statistic 3,947*** 3,407*** 6,338***

R-Sqaured 0,232 0,207 0,326

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5. Discussion and limitations

5.1 Discussion and conclusions

Extant IB literature has been particularly interested in entry mode decisions and its implications on several firm specific metrics (Brouthers and Hennart, 2007; Zhao et al., 2017). However, the impact of specific entry modes in the international context on firm performance is unclear due to mixed empirical evidence (Brouthers, 2002). Several scholars have explored this continuum but failed to provide a decisive answer due to conflicting empirical evidence (Chang et al., 2013; Merchant, 2005). This suggests that prior literature has not found the right explanatory drivers within a proper theoretical framework. Therefore, this study aims to address this research gap and answers the question which type of international acquisition yields the highest firm performance over time. To provide an answer to this research question, data from 253 acquisitions from US-based firms to 20 distinct countries in Europe and Asia in 2015 is examined through an integrative framework using TCT and RBV antecedents.

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long-term survival of firms, other factors might be at play. With that, this study adds to the existing literature that an empirical link can be found between entry mode decisions and firm performance but that this relationship needs to be examined more thoroughly to advance the understanding of true entry mode effects.

An explanation for these fluctuating results can be that the characteristics of the host country environment are fundamentally important for firm performance levels of expanding firms. This study controlled for such effects by adding multiple control variables in the statistical models. As was found in the results, the ease of doing business correlates with firm performance in the statistical models. This suggests that characteristics of the host country environment are indeed influencing the level of firm performance of expanding firms. As local country environment characteristics are shaped by the overarching local institutional environments, institutional theory can play an important role as well in entry modes research. Institutional theory proposes that a country’ institutional environment affects firm behavior and decisions regarding the boundaries of their operations. Such changes in behavior compared to a firm its home country, stems from the argument that institutional environments characterize ‘the rules of the game’ where the firm is operating in (Meyer, Mudambi and Narula, 2011). For instance, Meyer et al. (2009) suggested that the host country institutional environment pressures affect several firm strategies and objectives, such as entry mode decisions. These pressures can push the firm to choosing partial acquisitions while the optimal strategy regarding firm performance are full acquisitions. These misplaced strategies increase transaction costs for firms, which hampers subsequent firm performance (Meyer et al., 2011). However, such statements should be handled with care and thoroughly investigated before drawing decisive conclusions.

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behavior effectively to decrease transaction costs and improve firm performance. However, as this study did follow the suggestions of prior entry mode studies, it could be the case that other firm-specific drivers moderate the relationship. As outlined in the previous section and extant literature, firm size positively influences firm performance (Contractor, 1984). Similar to the explanation for the first hypothesis, it could be that firm size of the local firm could be of fundamental influence in the relationship to firm performance (Sestu and Majocchi, 2018). In general, it is acknowledged that bigger firms have more resources to commit and this positively affects performance (Luo, 2003). To conclude, future research should focus on determining which firm-specific drivers influence the relationship between entry mode decisions and firm performance.

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support for all its hypotheses, this study provides valuable insights in the dynamics of entry mode effects.

5.2 Limitations and future research directions

Like any other academic paper, this study suffers from several limitations. Nevertheless, these limitations provide avenues for future research. The first limitation within this study concerns the time frame of the acquisitions. The sample within in this study only entails acquisitions from the year 2015 and examines the performance based on the characteristics of the firm in that year. However, it could be the case that the acquiring firm adjusts its acquired stake in the consequent periods to optimally perform. This has not been taken into account for in this study due to lacking firm-specific data. It would be particularly interesting to see if the relationship between the acquired stakes and firm performance changes of time if the acquired stake is altered, either upwards or downwards. This approach could add tremendous extensions in entry mode research.

Second, due to a lack of data within Orbis, this study lost valuable acquisition deals obtained through Zephyr. As a result, the sample size decreased from 1038 observations to 253 observations. Hence, a lot of valuable information is lost to analyze the hypothesis. The robustness tests with a smaller sample did indicate a different result in one model. This suggests that other samples used by future research can indicate distinct results as well. Future research could therefore benefit from an increased sample size in order to improve the generalizability of the results and could provide a decisive answer on which entry mode performs best over time.

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Which entry mode yields the highest firm performance? An examination using an integrative approach of TCT and RBV antecedents.