CEO non-nativity and foreign equity commitment of emerging market firms : a subsidiary level analysis of Brazilian companies

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CEO non-nativity and foreign equity

commitment of emerging market firms:

A subsidiary level analysis of Brazilian

companies

Jan Jusup

11086416

24 June 2016

MSc Business Administration: International Management

University of Amsterdam

Final Version Master Thesis

Supervisor: Dr. Niccolò Pisani

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STATEMENT OF ORIGINALITY

This document is written by Jan Jusup who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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ABSTRACT

Extensive research has been conducted about specific chief executive officer (CEO) characteristics and their association with foreign equity commitment. In this field, the role of non-native CEOs on foreign equity commitment remains relatively unexplored. Continuing from the Upper Echelons Theory, the connection a CEO non-nativity and foreign equity commitment is made. Recent studies suggest that nationally diversified top management teams (TMTs) can positively influence firm performance and multinationality. This thesis examines the effect of non-native CEO of emerging market multinationals (EM MNEs) on firm’s foreign equity commitment. Moreover, the moderating effect of firm’s level of internationalization and high vs low global focus is studied. By focusing on 100 largest Brazilian companies, the findings suggest that there is a positive relationship between CEO non-nativity and foreign equity commitment. It is argued that this is a result of foreign CEO’s unique knowledge, skills, understanding, and norms and values, which are different to those of a native CEO. An EM MNE with a wish to increase its equity commitment in foreign markets should bring a non-native CEO to its board of directors.

Keywords: CEO non-nativity, foreign equity commitment, firm’s level of internationalization, firm’s global focus

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List of Figures

Figure 1: Conceptual model ... 28

List of Tables

Table 1: Descriptive statistics: means, standard deviations, and correlations ... 34

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1. INTRODUCTION

The internationalization of companies has attracted considerable attention in international business studies over the past five decades. Kirca et al. (2012: 503) suggest that ˝the internationalization of the firm […] potentially involves a central process that interacts with the structure, functioning, strategy, and performance of the firm,˝ which shows how complex the internationalization is and why this specific topic of IB research is one of the most exciting ones. As globalization has intensified, there has been a push for greater diversification in management positions (Heijltjes et al., 2003; Nielsen & Nielsen, 2013). Several studies have shown (Staples, 2007; Greve et al., 2009; Greve et al., 2015) that firms with foreign top managers internationalize more and are better equipped to deal with international markets.

Head-hunting of executives is no longer confined by the geographical boundaries of the home country, and the number of appointments of non-native chief executive officers (CEOs) and top management team members (TMT) has increased (Staples, 2007). This applies especially to multinational enterprises (MNEs) that seek superior decision-making by their top management teams in order to successfully cope with the complexity of foreign markets and constant challenges in the international business environment (Greve et al., 2015). Recent research has concluded that internationally experienced members of TMT do have a positive effect on firm performance (Hermann & Datta, 2002; Schmid & Dauth, 2014). Many scholars have conducted research about the influence of TMT’s or CEO’s characteristics, including age, tenure, international experience and education on firm performance and its internationality (Carpenter & Fredrickson, 2001; Finkelstein & Hambrick, 1990; Hermann & Data, 2002, 2005, and 2006; Sambharya, 1996; Tihanyi et al., 2000; Tihanyi et al., 2003), mainly through the eyes of Upper Echelons Theory (Hambrick & Mason, 1984). The main conclusion of the Upper Echelons Theory is ˝that executives create a

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constructed reality of a firm’s strategic situation based on their experiences, which, in turn, leads to specific strategic choices˝ (Hermann & Datta, 2006: 755). However, only few have looked at the impact of the TMT’s or CEO’s non-nativity on firm performance and its decision-making in foreign markets. Notable exceptions are Nielsen & Nielsen (2011), who distinguish between TMT international experience and nationality diversity; Greve et al. (2015), who look at foreign executive appointments and their influence on international firm behaviour; and Nielsen & Nielsen (2013), who find that under certain conditions, the nationality diversity of the TMT has a positive effect on firm performance. All of these studies have looked at the MNEs from developed markets (mainly the US or the EU), which exposes a research gap for emerging market companies.

Therefore, the characteristics and the nationality of a top management team of emerging market multinational enterprises (EM MNEs) should be considered, especially when looking at EM MNEs’ international patterns and performance. This research thus sheds a new light on the field of internationalization of EM MNEs. In order to provide new knowledge about this relatively new phenomenon, a study will be conducted, which aims to answer the following research question: ˝Does CEO non-nativity impact foreign equity commitment of EM MNEs?˝ Equity commitment criteria is chosen as it reflects a firm’s strategic choice when entering a foreign market. Higher equity commitment demonstrates a readiness of a company to take more risks upon internationalization. This can be a product of a foreign CEOs’ personal characteristics and his or her preference for higher risk taking due to their country of origin and, consequently, embedded values and characteristics.

To assess this question, the fundamentals of the internationalization theory of EM MNEs must be examined. EM MNEs use different tactics for internationalization compared to their Western counterparts. The most widely accepted view is the so-called springboard internationalization strategy. This term, coined by Luo & Tung (2007), essentially means that

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their equity commitment in a foreign market is usually substantial, in order to shorten the steps of internationalization and quickly secure strategically important resources. Further, CEOs’ international experience is associated with a preference for full-control entry mode choice (Hermann & Datta, 2002 and 2006). As EM MNEs compete with Western multinationals in the appointment of foreign top executives in home and host countries (Arp, 2014), it is necessary to have a better understanding of whether foreign executives in EM MNEs prefer higher equity investment than native CEOs. The findings could also explain the springboard internationalization by EM MNEs around the world and their ability to internationalize on par with traditional MNEs.

The following chapter will discuss previous research and findings relevant to this topic. The next chapter will be dedicated to the theoretical framework of CEO non-nativity and equity commitment in order to provide the basis for this thesis’ proposed hypotheses. Subsequently, the research methods used in the analysis will be discussed. The following chapter will examine the results from the statistical analysis. The interpretation, managerial implications, and academic relevance of the results will be discussed in the penultimate chapter; while the last chapter will be dedicated to a conclusion of this research.

2. LITERATURE REVIEW

2.1. Internationalization theories

In order to become MNE, companies must conduct business in other countries, hence internationalize. To internationalize successfully, they must implement an effective plan and choose the most suitable entry mode for a certain market. The fields of multinational enterprises and foreign direct investment (FDI) are among the most studied topics in IB research. Over the past decade several scholars have tried to explain why and how firms internationalize. Their theories were constructed to model the internationalization process of

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developed market multinationals. In this chapter, I will briefly explain some of the most relevant theories and entry modes.

Hymer (1976) was among the first to introduce his own concept of internationalization. His theory is based upon an assumption that foreign direct investment is a result of certain market imperfections; namely imperfections in the goods market, imperfections in factor markets, imperfect competition due to economies of scale, and imperfect competition due to government intervention. He states that firms possess certain firm specific advantages (FSAs), which enable them to overcome the liability of foreignness (Zaheer, 1995) upon engaging in FDI. These FSAs will eventually result in MNEs achieving monopolistic advantages.

Transaction cost economics (Williamson, 1979 and 1985) is the most commonly used theory in entry mode studies (Canabal et al., 2008). The emphasis is on the most efficient coordination mechanism, meaning that if there are some imperfections in the market, the market transactions will not be completed because firms will coordinate those transactions within their boundaries. An alternate term for this is process is internalization, which would essentially occur due to lower costs, which de facto leads to the creation of an MNE (Williamson, 1979; Hennart, 1989). Three factors influence decisions in transaction cost economics: asset specificity, uncertainty (internal and external), and frequency (Williamson, 1985).

The Uppsala Model (Johanson & Vahlne, 1977) explains firms’ gradual international development through four smaller stages. After operating at home, firms will enter geographically and culturally closer countries with low equity commitment (export), usually through agents; followed by larger equity commitment in those countries; usually selling through subsidiaries. As firms learn how to overcome the liability of foreignness, they will begin foreign production and even enter more distant countries and markets. Nevertheless,

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prior to entering a new market, companies must weigh the potential benefits of exploiting FSAs abroad against the risks of operating in unknown foreign environments and the cost of learning.

The Ownership-location-internalization (OLI) framework or Eclectic paradigm (Dunning, 2001) is based on three sub-paradigms or factors of a firm’s assets, which influence the entry mode choice: ownership advantages, which relate to control and costs; location advantages, which look at the availability and costs of resources; and internalization advantages, which concern reducing the cost through internalization of resources (Hymer, 1976). Dunning (2001) also identifies four main reasons for MNC internationalization; market seeking, resource seeking, efficiency seeking and strategy asset seeking.

In resource-based view (Barney, 1991), resources, either tangible or intangible, are the main advantage of a company upon entering a new market. In order to be used, these resources must improve firm’s efficiency; hence they must meet the criteria of being VRIN/VRIO. This means they have to be valuable, rare, imperfectly imitable, organization-specific, and/or non-substitutable. In resource-based view, the entry into a new market is a dynamic, longitudinal process, based on learning (Peng, 2001). Hence, companies not only learn to exploit resources, but also how to develop or explore them.

Peng (2002) introduces the institutional-based view, where he examines the role of institutions, both formal and informal, when entering a new market. Scholars such as North (1990) and Scott (1995) emphasize the importance of institutions in business environment. Each country’s institutions set the fundamental political, social (values and norms), and legal ground rules of behaviour in that country. This establishes the background base for the behaviour of companies and managers when entering a new country. Isomorphism is also a key factor in institutional-based view (DiMaggio & Powell, 1983), and its pressures can have an effect on decision maker’s entry mode selection (Brouthers, 2002).

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2.2. Internationalization of emerging market multinational enterprises (EM MNEs)

The EM MNEs are defined as ˝international companies that originated from emerging markets and are engaged in outward foreign direct investment, where they exercise control and undertake value-adding activities in one or more foreign countries˝ (Luo & Tung, 2007: 4). The latest World Investment Report (UNCTAD, 2015) shows that in 2014, the share of emerging economies in the world outward FDI flows has now reached 39 percent. The emergence of EM MNEs, especially of those from China and India, has attracted the attention of many scholars who tried to explain the internationalization of these companies (Buckley et al., 2014; Luo & Tung, 2007). These multinationals are not a new phenomenon per se, but the focus has turned towards them for their fast speed of internationalization and growth, globalized setting, and unique characteristics (Ramamurti, 2009). With their emergence, a new field of research about their motivations, paths, and performance has emerged (Aulakh, 2007).

In their study, Jormanainen and Koveshnikov (2012) review the literature on the international activities of EM MNEs for the period between 2000 and 2010. They show that EM MNEs are not limited to large private firms, that they are a subject to external and internal international pressures, while their origin is dispersed globally. EM MNEs therefore conduct business in developing, as well as in developed countries. However, the equity commitment in developed markets is higher, as EM MNEs usually engage in mergers and acquisitions when targeting developed markets (Jormanainen & Koveshnikov, 2012).

When internationalizing, EM MNEs must overcome not only the psychic distance and the liability of foreignness, but also liability of country of origin, which can be perceived as a significant disadvantage when entering a new market (Thite et al., 2016). Because they are latecomers, these companies want to exploit as many resources as possible when linking with other players. As this process is repeated, EM MNEs constantly learn to work more

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efficiently, which draws them closer to competition from developed markets (Thite et al., 2016).

According to Guillén and Garcia-Canal (2009), EM MNEs internationalize in order to explore critical assets needed to upgrade their capabilities and diversify. These assets can be managerial or manufacturing know-how, R&D capabilities, global brands, technological assets, or similar. Other motivating factors for going abroad can be found in related literature, including proximity to potential clients and the access to overseas markets (Athreye & Kapur, 2009; Moghaddam, 2014); global value-creation opportunities (Aybar & Ficici, 2009; Moghaddam, 2014); search for variety of resources to complement their own resource pool (Cuervo-Cazurra, 2008; Moghaddam, 2014); host country’s pull factors (Henisz, 2000); and home country’s institutional push factors (Luo et al., 2010). Nevertheless, the accumulation of resources is a crucial business strategy for EM MNEs (Buckley et al., 2016).

Kumar et al. (2013) bring all these motives together in the so-called ˝three I’s˝ of EM MNEs’ motives for international expansion. The ˝three I’s˝ are (1) Institutions, with the asymmetry between home and host country institutions; (2) Innovation, with advanced technology, management, and know-how; and (3) Internationalization, with global presence of the company. The internationalization process of these companies has been most-often referred to as a springboard perspective, a term coined by Luo and Tung (2007), which is the most acknowledged explication of EM MNEs’ internationalization to date.

In their article, Luo and Tung (2007) base their springboard perspective on two factors; international diversification and ownership. Grounded on these two factors, four groups of EM MNEs are formed; (1) niche entrepreneurs, which are smaller, privately owned companies, which focus typically on one industry; (2) world-stage aspirants, who offer a diversified range of products on multiple markets; (3) transnational agents, who are state owned, but are otherwise similar to world-stage aspirants in terms of scope and scale, the only

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difference being that they usually operate in a strategically important sector for their home government; and (4) commissioned specialists, who are state-owned, specialized and usually smaller companies, investing in few carefully selected markets. It is important to note that EM MNEs are not ˝born global˝ per se, but that their internationalization is a result of their competition and cooperation with other global MNEs in their home countries, smartly coined as a ˝coopetition˝ by the authors (Luo & Tung, 2007).

Further, inward investments, competition in some business areas, and cooperation in other business sectors enable EM MNEs to learn gradually and gain confidence and, when ready, start with the internationalization process. The authors show that EM MNEs typically opt for a faster pace of internationalization in order to overcome the latecomer disadvantages, skipping smaller steps in the process, which is contrary to the Uppsala model of internationalization, while simultaneously taking riskier decisions in doing so. The choice of location is typically radical as it often means entering more distant and developed markets (the US or the EU), rather than culturally and geographically closer and similar markets. These companies usually state their presence in the market through riskier entry modes, such as acquisitions of well-known brands and companies, or through greenfield investment (Luo & Tung, 2007). In turn, such tactics enable them to compete more effectively with other MNEs in the long term, both at home and abroad.

Several scholars (e.g. Hennart, 2012; Mathews, 2006; Moghaddam et al., 2014) tried to explain the internationalization process of EM MNEs through already existing theories of internationalization of Western MNEs, such as the OLI framework and resource-based view. They usually come to a conclusion that these models are not suited well for EM MNEs because they were made in different times, are better suited for traditional MNEs, and that they should be extended or edited in order to be relevant in EM MNE setting. Other scholars, such as Mathews (2006), believe that existent literature fails to explain the internationalization

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of EM MNEs well, so they have tried to explain it through new theoretical concepts, such as the linkage, leverage and learning (LLL) framework.

In the LLL framework (Thite et al., 2016), EM MNEs are leveraging their resources, similarly as in resource-based view, but with a difference in that while traditional MNEs internationalize in order to exploit their existing competitive advantages, EM MNEs internationalize to gain new competitive advantages, most often by acquiring intangible resources in developed countries (Thite et al., 2016). Later on, they can combine these new resources with their internal assets, resulting in valuable competitive advantages (Kogut & Zander, 1992) which are key factors for the success of EM MNEs’ internationalization (Mathews, 2006; Yi Cao, 2012).

Jormanainen and Koveshnikov (2012), note that EM MNEs originating from the same home country use many different paths to internationalization. Some choose the Uppsala model of gradual expansion, while others engage in rapid and aggressive mergers and acquisitions. The targeted host countries vary as well, as EM MNEs are entering both developed and developing countries, meaning they operate globally. Further, some authors identify features of international expansion that are unique for EM MNEs. Bartlett and Ghoshal (2000), for example, notice that these companies have the ability to see a potential for their product in the global market well before they are able to exploit that opportunity. Matthews (2006) highlights how they excel at successfully obtaining tangible benefits during a limited window of opportunity, while Bonaglia et al. (2007) contend that they can achieve accelerated internationalization through exploiting their organizational innovations and fast adaptation to the circumstances of doing business in a developed world, though being a company from an emerging market.

Having the internationalization theory of traditional MNEs and EM MNEs in mind, the following chapter will now explore different entry modes.

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2.3. Entry modes

The international expansion of multinationals provides them with access to new consumer markets and business opportunities; hence larger scope for increased profitability (Zahra et al., 2000). Prior to entering a new market, companies must make an important decision that will eventually determine how much, if any, equity investment are they willing to commit. This decision depends on several factors, such as the characteristics of the parent firm, the size of the new operation, industry, and home and host country characteristics (Broughers & Hennart, 2007). Agarwal et al. (1992) conducted a study about the impact of OLI advantages on internationalization and found that although firms wish to internationalize and establish themselves in foreign markets, their ability to do so is limited by their size and previous internationalizing experience. Companies must carefully choose a market entry mode, as research shows that changing entry mode afterwards exhausts a significant amount of time and money (Pedersen et al., 2002).

Pan and Tse (2000) propose a hierarchical model of market entry modes. First, entry modes can be distinguished between equity mode and equity (FDI) mode. Under the non-equity mode, we can find exports and contractual agreements; while within non-equity modes we distinguish between joint ventures (JV) and wholly owned subsidiaries (WOS). WOS can be further split into green-fields (building a subsidiary from scratch) and acquisitions (acquiring a controlling share in an existing venture). According to Anderson and Gatignon (1986), the level of control increases with percentage of ownership, hence control is the focus of the entry mode choice. Further, they show that high control modes usually translate to increased risk and return, while low control modes minimize expenses and therefore result in less return. Hence, WOS is preferred when firms strive for long-term commitment and seek full control over their subsidiary (Kogut & Singh, 1988). Agarwal et al. (2012) note that firms tend to use investment commitment in markets with high potential and that some of the largest multinationals may even choose substantial equity commitment in markets with relatively

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lower potential, but only if their strategic objectives dictate so. Then again, small firms with less international experience prefer to enter a market of high potential with a JV. They observe that when high risk is perceived, all firms avoid investing in such a market and engage only with exports when needed. Nevertheless, Agarwal et al. (2012), note that considerable managerial and financial resources are needed for the long-term success of an FDI.

Anderson and Gatignon (1986) propose that the most efficient entry mode for a company can be measured by examining the trade-off between control and the cost of resource commitment. Upon deciding for WOS, the company will not only retain full control of its subsidiary, but it will also carry the costs and risks of full ownership (Anderson & Gatignon, 1986; Agarwal & Ramaswami, 1992). More control also means higher vulnerability to environmental changes because of the decreased flexibility of the company (Hill et al., 1990). A minority stake is an option when a company does not want to, or is not able to bear all the costs and risks associated with full ownership. JV, which is a mutual agreement between two or more parties, is a viable alternative to WOS where two firms agree to share costs associated with establishing an affiliate, therefore enabling them to commit to less equity investment (Anderson & Gatignon, 1986), limiting the exposure to risk and increasing operational flexibility (Gatignon & Anderson, 1988; Kim & Hwang, 1992), and even lowering the initial cultural distance between host and home country (Slangen & van Tulder, 2009). JVs can take the form of minority JV, majority JV or equal-stake JV (Pan & Tse, 2000). If a company decides on an international JV, it usually engages with a local partner, in order to access their knowledge of the host country’s environment (Slangen & van Tulder, 2009). Kogut (1991) presents an idea where JVs are an option to expand and acquire, meaning that a firm’s initial investment in JV is the right to grow and expand in the future; which demands further equity commitment. In his view, the timing of further acquisition is

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critical and is reasonable only when the perceived value to the buyer is greater than the exercise price (Kogut, 1991). It is worth mentioning that the costs associated with exiting the market are lower when engaged in JV than in the case of WOS.

Meyer et al. (2009) researched the entry mode strategies in emerging markets. They conclude that institutions and resources play a major role in deciding on the mode of entry into an emerging market. On one hand, under strong institutions, acquisition will be preferred when intangible local resources are needed by the acquiring firm, while the greenfield option will be used when there are little to no required local resources. On the other hand, under a weak institutional framework, greenfield will be used when local resources are needed and IJVs will be used when any resources are needed. Several scholars (Guillen & Garcia-Canal, 2009; Peng, 2012; Rui & Yip, 2008) show that EM MNEs often engage in riskier entry modes when entering new markets, such as acquisitions and greenfield, especially when entering other developed markets (Child & Rodrigues, 2005; Luo & Tung, 2007; Mathews, 2006). Nevertheless, the ultimate judgement in deciding for an entry mode varies between the firms and lies with the top management team (TMT).

2.4. Top management team and national diversity

TMTs are in charge of managing complex and often geographically dispersed operations, while coping with the demands of many different stakeholders. The literature concerning internationalization commonly assumes that market entry decisions are purely rational, while it ignores the importance of subjective decision-making (Brouthers & Hennart, 2007). The issue of entry mode variables for FDI decision-making, such as firm, industry, and country characteristics have been studied extensively (Brouthers & Hennart, 2007), but such studies ignore the importance of the actual decision-makers – the TMT, who are an important factor in deciding how to enter a new market. TMT can be defined as “the executives who are full members of the executive committee as per the companies own definitions˝ (Greve et al.,

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2009: 217); hence those tasked with making critical decisions inside a firm. TMTs are therefore accountable for making strategic decisions and choosing where, when, and how to enter a foreign market. Some authors (Athanassiou & Nigh, 2000; Heijltjes et al., 2003; Luo, 2005; Greve et al., 2009) believe that companies should hire top managers with international experience or foreign nationality in order to cope better with strategic decisions. They believe that those managers have better information-processing capabilities with regards to foreign markets than managers originating solely from the firm’s home country. Ultimately, Greve et al. (2015: 676) note that ˝different nationalities in the upper tiers of management denotes a strong commitment to international markets and stakeholders across the MNE’s geographical locations and a readiness to trade in local attachment in response to the demands of global operations˝. Hermann & Datta (2002 and 2006) are among the few to have examined this important topic previously. They observed larger U.S. firms, their CEOs’ characteristics, and the choice of foreign market entry mode. They found that CEOs with higher position tenure preferred full-control entry modes, which consequently bear more risk. Moreover, CEOs with more international experience, which provides them with extensive knowledge and more confidence, were also more likely to select full-control entry mode.

Previous studies have examined the effects of different TMT composition (Finkelstein & Hambrick, 1996), but have failed to delve into the personal background of the executives that constitute the TMT. However, the aforementioned Upper Echelons Theory (Hambrick & Mason, 1984) looks at the organization as being the reflection of its top management and their individual characteristics. Hambrick & Mason (1984) contend that an organization’s strategic choices, performance and outcomes are directly affected by the composition of the TMT and the characteristics of its members, including age, functional track and other career experiences, formal education and socioeconomic background, hereafter referred to as TMT characteristics. Kirca et al. (2012) provide strong support for the Upper Echelons Theory

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through their meta-analysis study of internationalization literature. This emphasizes the importance of TMT’s influence on strategic management decisions, including product innovation, diversification, and acquisitions. Hambrick and Mason (1984) based the Upper Echelons Theory on the findings of the behavioural theory by Cyert and March (1963) and March and Simon (1958), who argue that ˝complex decisions are largely the outcome of behavioural factors rather than a mechanical quest for economic optimization. […] In their view, bounded rationality, multiple and conflicting goals, myriad options, and varying aspiration levels all serve to limit the extent to which complex decision can be made˝ (Hambrick & Mason, 1984: 194). Hence, the behavioural theory is applicable when decisions are more complex or strategic. Other authors (Finkelstein & Hambrick, 1990; Sambharya, 1996; Chaganti & Sambharya, 1987) have also explored the relationship between TMT characteristics and an organization’s international performance. They primarily focused on the same or similar characteristics as Hambrick and Mason (1984). For example, Sambharya (1996) found that where there is significant foreign experience among the members of a TMT, the firm will likely be more internationally involved. Yet only a few of those studies have looked at the TMT’s nationality distribution (Heijltjes et al., 2003; Banerjee et al., 2015; Greve et al., 2015).

Even though organizations are becoming more diverse and international in terms of foreign sales, markets, and assets (Heijltjes et al., 2003), little is known about the effect of the internationalization on TMT in multinational companies and the reasons for some companies to employ more foreign top managers and CEOs, while others prefer native management (Nielsen & Nielsen, 2011). Nielsen and Nielsen (2011) distinguish between two specific TMT characteristics relevant to internationalization. The first one is the TMT international experience, for which they found that TMTs with more international experience tend to prefer full-control entry modes over shared-control entry modes. The other important TMT

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characteristic is TMT nationality diversity, for which they claim that more nationally diverse TMTs prefer joint-venture over full-control entry modes. Nielsen & Nielsen (2011) further conclude that the values and norms originating from an executive’s national culture have an observable effect on their orientation and decision-making. This means that national background will influence a manager’s interpretation of information, which in turn provides a point of reference for further decision-making. Consequently, the importance of CEO and TMT nationality is gradually being recognized as a relevant factor when examining paths for internationalization. They also note that international diversity in TMTs requires more attention from scholars due to its importance and previous lack of recognition.

Gupta and Govindarajan (2002) argue that companies must increase diversity in TMTs, as more diversified management teams can better cope with different cultural, institutional, and competitive environments of foreign markets. This provides them with advantages when making strategic decisions, hence resulting in superior performance compared to single-nationally TMTs. Greve et al. (2009) conducted extensive research in the field, looking at the dataset of banking and insurance firms and their top executives, with headquarters in the eleven most developed European countries. They looked at the correlation between a firm’s internationalization and the composition of its TMT. The findings illustrate that companies with more diverse TMTs entered unfamiliar foreign markets with more ease (Greve et al., 2009).

Although there are several studies about the influence of the characteristics of TMTs on firm performance and its internationalization (Chaganti & Sambharya, 1987; Nielsen & Nielsen, 2010, Rivas, 2012; Sambharya, 1996; Tihanyi et al., 2000; Van Veen & Marsman, 2008), the influence of nationality diversity in TMTs on firm performance and decision-making has been, however, largely neglected by scholars (Banerjee et al., 2015; Nielsen & Nielsen, 2010; Nielsen & Nielsen, 2013). There is evidence that suggests that firms are

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increasingly hiring top managers from foreign countries in order to internationalize their TMT and cope better with the unpredictability of international markets (Greve et al., 2009; Staples, 2007). Greve et al. (2015) challenged this research gap and conducted a study among 360 large European firms. The research examined 1446 TMT appointments between 2001 and 2005 and tested several hypotheses about the relationship between foreign executive appointments and individual and firm-level precedents. Their research model suggests that foreign TMTs are appointed because of their perceived superior ˝location-specific information-processing, resource-seeking, and legitimacy-building capabilities […]˝ (Greve et al., 2015: 682) and that nationality is not important when MNEs seek a manager whose focus is to be directed at firm-specific issues. These findings suggest that each member of the TMT should be appointed based on their specific role within the company. Further, their results show that firms with a higher degree of internationalization are more likely to appoint a foreign and more experienced TMT member, thus minimizing the LOF, costs and risks associated with internationalization. They conclude that ˝an internationally diversified TMT is potentially more capable of handling the challenges and pressures that accompany international expansion˝ (Greve et al., 2015: 683).

Ultimately, several studies have been conducted that examine TMT’s or CEO’s characteristics, such as age, job tenure, education, and international experience (Chaganti & Sambharya, 1987; Nielsen & Nielsen, 2010, Rivas, 2012; Sambharya, 1996; Tihanyi et al., 2000; Van Veen & Marsman, 2008), but fail to address the importance of the CEO. However, there is also limited research about the importance of the nationality of top management in strategic decision-making (Nielsen & Nielsen, 2011; Greve et al., 2015). Moreover, these studies have been conducted mainly for the US and EU countries, and scholars have yet to turn their attention to companies from emerging markets. There is therefore still a lack of research on the effect of TMT or CEO nationality, emerging markets, and the entry mode

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decision. This study aims to close that research gap and provide an answer to the following question: Does CEO non-nativity impact the foreign equity commitment of EM MNEs?

3. THEORETICAL FRAMEWORK

EM MNEs that wish to enter foreign markets must tackle the numerous challenges faced when going abroad. Simultaneously, they must continue to compete with well-established multinationals from developed countries. In order to successfully cope with geographically dispersed markets and keep up with different demands from various stakeholders, MNEs must head-hunt managers with either foreign experience or foreign nationality (Athanassiou & Nigh, 2000; Heijltjes et al., 2003). This signals a firm’s readiness to evolve into a multinational company (Bartlett & Ghoshal, 1989). Several studies show that a nationally broad composition of TMT is an important step in a firm’s internationalization process and can have a positive impact on MNE performance abroad and on its multinationality (Gong, 2006; Greve et al., 2009; Nielsen, 2010; Nielsen & Nielsen, 2013; Sambharya, 1996; Schmid & Dauth, 2014). Gupta and Govindarajan (2002) propose that internationally oriented companies should open doors to foreign managers and encourage their presence on boards in order ˝to be open to and be aware of diversity across cultures/markets and to synthesize across this diversity˝ (Kaczmarek & Ruigrok, 2013: 515).

3.1. CEO non-nativity and foreign equity commitment

With the appointment of foreign managers, companies receive new knowledge and insights in the context of strategy thinking. Values, cognitive schemas, demeanour, and other social norms of individuals, in this case the CEOs’, together with other behavioural characteristics portray their nationality (Hambrick et al., 1998). Such cognitive schemas shape an individual’s way of interpreting information, and other decision making and task solving processes, which characterize different nationalities (Hambrick et al., 1998). The nationality of a person can be defined as ˝a factor which determines communication patterns and

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interaction styles, as well as the structure and content of personality trait hierarchy˝ (Oetzel, 1995 in Kaczmarek & Ruigrok, 2013).

Continuing from the Upper Echelons Theory, Finkelstein and Hambrick (1996) demonstrate that strategic choices of top managers are indeed influenced by their demographic characteristics and are an extension of their personal values. Formal and informal institutions in a country lead to an individual’s understanding of the surrounding environment and hence provide them with a solid basis to make well informed decisions (Crossland & Hambrick, 2007). Cultural patterns of behaviour are acquired in early childhood and once formed are unlikely to change (Hofstede, 1980; Hofstede & Hofstede, 2005). Geletkanycz (1997) provided evidence for how an executive’s cultural background is influential in how they think and act and further showed how the culturally embedded values of managers were as important as their professional experience. This can result in an altered understanding of different situations and reactions to strategic issues.

Anthanassiou and Nigh (2002) contend that some foreign managers are appointed due to their local knowledge of their home country or region and through leveraging this specific knowledge, bring added value to the TMT of a company. Greve et al. (2009) demonstrate that foreign managers are superior decision makers with respect to making key decisions in foreign markets or regions, important to the MNE. Luo (2005) further argues that foreign managers possess valuable skills and expertise which go beyond conventional knowledge per se. Strategic management literature agrees that top managers play the most important role in establishing and implementing firm strategy (Westphal & Fredrickson, 2001) and that they play a significant role in determining the success of the company (Kauer et al., 2007), which ultimately gives them credibility as decision-makers. Through studying the relationship between the CEO and the empowerment of TMT, Ling et al. (2015) emphasize the importance of doing research for both TMT as a group on one hand, and CEOs as individuals

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on the other hand, due to the CEO’s role as a team leader and his or her influence on other members of the TMT.

Several authors show that newly appointed top managers, with an emphasis on those recruited from outside the organisation, often set a new strategic direction for the company (Dutton et al., 2001; Papadakis & Barwise, 2002). However, recently some authors have shown that companies are hiring non-native managers in order to successfully cope with international markets (Greve et al., 2009; Staples, 2007) and emphasized the importance of TMT nationality on firm performance (Banerjee et al., 2015; Nielsen & Nielsen, 2013) and entry mode choice (Nielsen & Nielsen, 2010). Similarly, Datta et al. (2003, p. 111) find that ˝organizations that wish to effect significant changes in their strategies are more likely to realize their goals through the selection of a CEO with demographic attributes associated with greater openness to change˝.

In light of their research, this paper argues that in addition to already studied demographic factors, the choice of entry mode and consequently the equity commitment is likely to be influenced by CEO nationality. Emerging market companies that wish to establish themselves in foreign markets should consider hiring foreign CEOs due to their inherently higher risk seeking characteristics, embedded in them through their upbringing. In order to successfully compete with developed multinationals, which are usually already present in foreign markets, EM MNEs need to take larger steps in internationalization and consequently tackle higher risks when doing so. They are therefore more inclined to favour higher equity commitment, which enables them to have more control over the assets abroad. Nevertheless, none of the studies so far have researched the correlation between CEO’s non-nativity and foreign equity commitment in their foreign affiliates, leading to the first hypothesis:

Hypothesis 1: All else equal, CEO non-nativity is positively related to the foreign equity commitment of EM MNEs.

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3.2. The moderating role of the firm’s degree of internationalization

Recently, Kaczmarek and Ruigrok (2013) studied the effect of TMT nationality diversity on firm strategic decision making and internationalization, and found that ˝…TMT nationality diversity becomes advantageous only in firms with high degrees of internationalization˝ (Kaczmarek & Ruigrok, 2013: 514). This means that under certain circumstances, only firms that pursue global strategy and that are committed to foreign markets will benefit from the appointment of non-native TMT members. This is because firms can utilise benefits such as cross-cultural awareness and their knowledge of foreign markets only when they are placed in an international environment and exposed to foreign markets, while simultaneously being confronted with the challenges experienced from operating in culturally and institutionally distant markets (Kaczmarek & Ruigok, 2013).

Heijltjes et al. (2003) analysed Swedish and Dutch companies and the internationalization of their top management teams. Their research shows that although the companies from these countries have internationalized significantly over the years, the internationalization of top managers remained low. Their research indicates that the percentage of foreign board members was around 10 per cent for both countries. They identify several factors encouraging the internationalization of the TMT, such as the degree of internationalization of the foreign workforce, the international expansion of the firm, and an internal shift towards international activities. The results also illustrate that ˝the national diversity of top management teams has not progressed to the same level as the internationalization of the companies at large˝ (Heijltjes et al., 2003: 93). According to their study, only two Dutch companies in question had a foreign CEO in 2002.

While native, but internationally oriented managers can understand the cultural behaviour of the foreign country they operate in, foreign managers are more likely to project and truly act in the way of their cognitive cultural schemas and characteristics of their nationality (Greve et al., 2009). This makes them better suited for entering new markets.

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Having that in mind, this paper argues that emerging market firms with higher levels of internationalization appoint foreign CEOs in order to cope better with increased market complexities. CEOs who are the main decision makers in the company can in turn bring new insights to the strategic management of the firm and deliver concrete knowledge about cross-cultural issues. When EM MNEs already have a high level of internationalization, the choice of higher equity commitment entry mode should be easier to decide on. Such companies already have prior experience in foreign markets, while their TMT are already aware of challenges faced and the relevant risks. They are also more prone to adopting higher equity entry modes and are better suited for taking advantage of a non-native CEO. A foreign CEO in a more internationally oriented company should consequently be able to push for higher equity presence in the market. These firms are therefore more confident of taking even larger steps in internationalization, while being ready to commit more equity when doing so, hence:

Hypothesis 2: The relationship between CEO non-nativity and foreign equity commitment is positively moderated by the firm’s degree of internationalization.

3.3. The moderating effect of the firm’s high vs low global focus

To better understand the phenomenon of globalization, Rugman and Verbeke (2004) studied foreign diffusion of the largest 500 MNEs. Although the general public refer to these companies as global, the authors found that large proportions of them operate mainly in their home region, whether that is North America, the European Union or Asia, commonly known as the triad. They classify these companies into several groups: (1) ´home region oriented´, where at least 50 per cent of a firm’s sales are in their home region; (2) ´bi-regional´, where at least 20 per cent of sales are made in two given regions, but less than 50 per cent in any other; (3) ´host region oriented´, where more than 50 per cent of sales are made in other region of the triad, but their home one; and (4) ´global´, where companies have at least 20 per cent of sales in each of the three regions of the triad (Rugman & Verbeke, 2004).

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They conclude that only nine firms of the 365 that were eligible for this study were truly global firms, while the vast majority of them (320), were home region oriented (Rugman & Verbeke, 2004). These results also suggest that a majority of the companies concentrate their business in their home region of the triad and consider operations abroad as a secondary objective. The mere presence of a firm in a foreign market therefore does not make it global per se, which is why these companies should be referred to as regional instead of global. Ghemawat (2003) approached the same problem from a different perspective.

In his paper, Ghemawat (2003) reviews the cross-border integration of markets of products, capital, labour, and knowledge. Although many of these markets have reached unprecedented levels of integration at the observed time and although the levels of cross-border assimilation were significant, they were still far from complete and reaching optimum levels. This condition of incomplete cross-border integration is referred to as semiglobalization, which is essentially a state between total insulation and total integration, ˝…because it involves situations in which the barriers to market integration at borders are high, but not high enough to insulate countries completely from each other˝ (Ghemawat, 2003: p. 139).

Both articles lead to the notion by Sanders and Carpenter (1998) that when doing business abroad, companies have to deal with greater diversity between cultures and their surrounding environments, while the higher complexity of international business increases the level of its complexity (Oxelheim et al., 2013). This could explain why there are almost no truly ´global´ companies and no real ´globalization´. Different knowledge about foreign markets and experience can prove to be essential when coping with diverse institutional environments (Nielsen & Nielsen, 2013). Greve et al. (2009) and Luo (2005) likewise show how foreign top managers can be more effective in decision making regarding foreign markets. Globally focused companies should therefore employ foreign top managers, who can

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help overcome these complex issues of operating in foreign markets with a set of new ideas, different ways of thinking, and diversified knowledge (Van Veen et al., 2014).

Companies with higher global focus should reap the rewards of having a foreign CEO due to their favourable predispositions, such as significant foreign market presence already in place. This means that such companies already possess necessary know-how about operating abroad, for example coping with numerous challenges and minimising any possible risks. EM MNEs that strive for regional strategy and operate in geographically closer countries do not need substantial knowledge about foreign markets as those countries are similar to their home country environment. Native managers therefore have enough necessary knowledge about home region markets and know how to minimise risk when engaging in foreign equity commitment. Operating in more distant regions, however, calls for different strategies, deeper understanding of the market, and more specialised management capabilities. As CEOs are the main decision makers in the company, companies that wish to even further increase their equity presence in foreign regions can appoint non-native CEOs who will develop a firm’s strategy in such a direction. This should in turn increase the willingness of firms with higher global focus to increase their foreign equity commitment in contrast to firms with lower global focus. Therefore:

Hypothesis 3: The relationship between CEO non-nativity and foreign equity commitment is positively moderated by the firm’s global versus regional focus.

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H1

H2 H3

4. METHODS

4.1. Sample and data collection

To examine the effect of CEO non-nativity on foreign equity commitment, a cross-sectional research design was used. The sample consists of the 100 largest Brazilian companies according to revenue from the 2014 financial year. These companies operate in many different industries and most of them are present in foreign countries through their subsidiaries and therefore engage in foreign equity commitment.

The firm specific data was based on ORBIS database by Bureau van Dijk, which is a broad database with detailed information about companies worldwide. This database has been used in several prior studies and is suitable for firm-level observations due to the comprehensive nature of the data. Additionally, as some data was not present in the ORBIS database, the annual reports of the companies for 2014 were used to supplement the final dataset. The ORBIS database and annual reports were therefore a primary source of data for this research.

CEO non-nativity Foreign equity

commitment

Firm's degree of internationalization

Firm's high vs low global focus

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4.2. Measures

4.2.1. Dependent Variable

The dependent variable in this study is the equity commitment the company holds in its foreign affiliate. A list of subsidiaries of each company was collected from the ORBIS database. For the purpose of this research, the company’s total stake in their foreign affiliate was used. For a small part of the dataset, ORBIS reported the stakes as WO or Wholly Owned (100%), MO or Majority Owned (>50.01), and n.a. as not available instead of the actual percentages. Decoding was therefore necessary for these specific companies and WO was decoded to 100, MO was decoded to 75, and n.a. was decoded to a missing value.

4.2.2. Independent Variable

The independent variable in this study is CEO non-nativity. A dummy variable was constructed to define whether the CEOs of selected companies were native to Brazil or not. More specifically, their nationality was recognized on the basis of their citizenship, where a CEO is considered native when his citizenship is of the country of origin of the firm, in this case Brazilian. The information containing CEOs’ nationalities was collected from ORBIS database and double checked with the firm’s official annual reports for the observed year. The value of 1 was given to non-native (non-Brazilian) CEOs, while 0 denotes native CEOs. CEOs with dual citizenship where one of the citizenships was Brazilian were given a value of 1.

4.2.3. Moderating Variables

This study uses two moderators, namely the firm’s degree of internationalization and the firm’s global focus. Simply put, a moderator is a variable, which affects the strength of the relationship between an independent and a dependent variable (Baron & Kenny, 1989). This means that the presence of a moderator will affect the relationship between two variables, either positively or negatively. In this study, it is expected that both moderators, the firm’s

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degree of internationalization and the firm’s global focus, will positively moderate the relation between CEOs’ non-nativity and foreign equity commitment.

The firm’s degree of internationalization moderator is measured by the average ratio of foreign sales to total sales. The first moderator therefore focuses on the extent of a firm’s presence in foreign markets, including countries from their home region. The firm’s high vs low global focus moderator looks at the average of global sales over total sales. The higher the ratio, the more globally focused the company is; while low global focus signifies a regional focus. This variable therefore represents the extent to which a company has a global focus, rather than regional. A distinction needs to be drawn between the two moderators. Companies can have the majority of their sales in foreign markets with most of those sales still occurring in their home region. This means that the firm is not globally focused per se. Regional sales are therefore included in the measure of foreign sales, but not in the measure of the global sales. After analysing the data, a continuous variable was constructed for both of the moderators.

4.2.4. Control Variables

In this research, three variables were used to control for potential heterogeneity at the firm level. The first one is firm size, which is a commonly used control variable. The main idea behind using this variable is that firm size has an impact on firm performance. Larger firms should be more capable of being present in multiple markets and are better at exploiting economies of scale (Chao & Kumar, 2010). To control for economies of scale, the natural logarithm of the total annual sales of 2014 is extracted in order to avoid bias in the findings.

The second control variable used is the firm’s age, measured as years after the incorporation up to the research period, 2014. The type of industry is the third control variable in this study, as profits can differ significantly between industries. Different industries can make for different paths to internationalization and the companies from diverse industries can

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behave in a different way. The industry is captured with three categorical variables and the SIC codes were used to differentiate between the industry segments of observed companies. The primary sector (SIC codes 01 - 39) comprises firms operating with natural resources; the secondary sector (SIC codes 40 - 59) is reserved for production and manufacturing companies; while the tertiary (SIC codes 60 - 99) sector covers firms in service industries. After the categorization, the three sectors were coded as two dummy variables, using primary and secondary sectors, as the three levels of industry are mutually exclusive and exhaustive.

4.3. Statistical analysis and results

The descriptive statistics and correlations between variables are presented in Table 1. A multicollinearity test is run first to assess the correlations between all predictor variables. The correlation between global focus and firm size (r = 0.885) and global focus and the firm’s degree of internationalization (r = 0.937) is high. High correlation between these variables indicates multicollinearity issues and a presence of problematic constructs for this analysis, according to Pallant (2011). This means that the global focus and firm size variables cannot be tested in the same model simultaneously. For this reason, the firm size control variable had to be removed from the analysis. Global focus and the degree of internationalization are the two moderating variables and have not been tested within the same model simultaneously, therefore both have been retained. None of the other variables are strongly correlated (>0.7) and can therefore be kept in the analysis.

The mean of the foreign equity commitment variable is 0.79 which indicates that on average, Brazilian companies tend to opt for relatively high equity commitment in their subsidiaries. As for the moderating variables, the firm’s degree of internationalization mean was approximately 21 percent and the firm’s global focus was about 20 percent. Specifically, the former had a mean of 0.212, while the latter had a mean of 0.203. This indicates that Brazilian companies on average achieve most of their sales in Brazil. When looking at the

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global dispersion of sales, without the international sales in home region, they are more regionally focused than globally. With regard to the control variables, the average company age was 40 years old, which corresponds to an average year of establishment of 1974. The average firm revenue was $10 billion USD with 42 companies operating in the primary sector, 35 in the secondary sector and 23 in the tertiary sector.

A hierarchical regression analysis was used to test the hypothesis to determine the relationship with the explanatory variables. For the purpose of this study, Ordinary Least Square (OLS) analysis was used. After centering the variables, the interaction terms between the CEO non-nativity and degree of internationalization, and between the CEO non-nativity and the firm’s high vs low global focus were computed. The control variables were entered into the first model, the independent variable was entered into the second model, the first moderator and its interaction term with the independent variable were entered into the third model, and finally the second moderator and its interaction term with the independent variable were entered into the fourth model. The results of this regression analysis are reported in table 2.

In interpreting the results, it is important to consider three significant values when determining if there is a relationship between the variables. Significance (p-value) indicates whether the results are reliable and therefore whether they can support the hypotheses or not. The beta standardized coefficient illustrates the change which occurs in the dependent variable when the explanatory variables are added. Its sign specifies the direction in which the change has occurred. The R^2 measures the goodness-of-fit of the model which indicates the degree of how close the data is to the fitted regression line. It essentially shows what percentage of the data is explained by the given model.

In table 2, the adjusted R^2 improves from 4.1 percent explanatory power in model 1 (F = 5.083; p-value < 0.05) to 17.4 percent explanatory power in model 2 after introducing the

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independent variable (F = 16.000; p-value < 0.001). The R^2 improvement from 0.041 to 0.174 indicates that the addition of the independent variable CEO non-nativity improves the model’s overall explanatory power. It further indicates that the CEO non-nativity has significant positive effect on the size of foreign equity commitment of Brazilian firms (b = 0.373, p-value < 0.001), providing a strong support for hypothesis one.

The results of the further models in the analysis indicate that not all of the included factors have additional explanatory power as their significance level was not below the 0.05 threshold. The moderating effect of the firm’s degree of internationalization is used in the second hypothesis. The results of this hypothesis are shown in model 3. The firm’s degree of internationalization moderator has a positive significant (b = 0.233, p = 0.003) direct effect on foreign equity commitment, but the interaction term between the firm’s degree of internationalization and CEO non-nativity was not significant (b = 0.137, p < 0.293). Because no significant moderating effect of the interaction term was found, hypothesis two is not supported.

A similar explanation can be applied for the interaction term in model 4, which is used for evaluating hypothesis 3. In this case, the direct effect of the second moderator was negative and significant (b = -1.119, p < 0.001). The interaction term with the CEO non-nativity was not significant (b = -0.356, p = 0.603), therefore indicating that hypothesis 3 is also not supported.

For the firm age control variable a support is found at 0.05 threshold (b = -0.165, p = 0.007), which suggests that this firm characteristic has a significant influence on the foreign equity commitment. Considering the same threshold level, the other two control variables did not have a significant effect on the overall model; therefore the specific industry did not have significant impact on foreign equity commitment.

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Table 1: Descriptive statistics: means, standard deviations, and correlations

** p < 0.01, * p < 0.05

Variable Mean Std. Dev. 1 2 3 4 5 6 7

1. CEO non-nativity _0.05 _0.227 ₁ 2. Company age _{40.194 32.508} _0.119** ₁ 3. Company size _8.208 _1.293 _-0.086** _0.431** ₁ 4. Primary sector _0.73 _0.445 _0.123** _-0.110** _0.100** ₁ 5. Secondary sector _0.05 _0.220 _-0.056* _0.090** _0.020 _-0.380** ₁ 6. Degree of intern. _0.178 _0.295 _0.028 _0.354** _0.540** _0.148** _-0.111** ₁ 7. Global focus _0.616 _0.281 _-0.530** _0.238** _0.885** _0.457** _-0.387** _0.937** ₁

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Table 2: Regression results

** p < 0.001, * p < 0.05

Dependent variable: foreign equity commitment Model 1 Model 2 (H1) Model 3 (H2) Model 4 (H3)

Beta Sig. Beta Sig. Beta Sig. Beta Sig.

Constant _0.000** _0.000** _0.000** _0.000** Control variables Firm age _{-0.165 0.007*} _{-0.226 0.000**} _{-0.299 0.000**} _{-0.174 0.012*} Primary sector _{-0.240 0.095} _{-0.241 0.071} _{-0.291 0.029*} _{0.009 0.952} Secondary sector _{-0.271 0.062} _{-0.228 0.092} _{-0.177 0.189} _{-0.186 0.155} Independent variable CEO non-nativity _{0.373 0.000**} _{0.356 0.004*} _{-0.685 0.552} Moderator variables Degree of internationalization _{0.233 0.003*} Global focus _{-1.119 0.000**} Interaction terms

Degree of internationalization x CEO non-nativity _{0.137 0.293}

Global focus x CEO non-nativity _{-0.356 0.603}

R2 _0.051 _0.186 _0.212 _0.267

Adjusted R2 _0.041 _0.174 _0.195 _0.246

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5. DISCUSSION

While previous research has concentrated on other characteristics of TMT, this study looks at whether the firms from emerging markets with a non-native CEO engage in more equity commitment in their foreign affiliates. This research shows that there is a positive and significant relationship between CEO non-nativity and foreign equity commitment, indicating that on average, Brazilian companies that have a foreign CEO have a higher equity commitment in their foreign affiliates than Brazilian companies with native CEO. This demonstrates that when firms wish to engage in higher foreign equity commitment, the advantages foreign CEOs bring to a company exceed any possible issue of his or her appointment. These results are in line with previous research conducted on a similar topic by Greve et al. (2009) and Nielsen and Nielsen (2010 and 2013). Any possible negatives of appointing a foreign manager are therefore mitigated by their superior knowledge about foreign markets and different ways of interpreting situations and general norms and values.

When considering the moderating effects of the firm’s degree of internationalization and the firm’s high vs low global focus, no evidence of moderation for either of the two interaction terms with the independent variable was found as both of their p-values were not significant. Therefore, it cannot be concluded that a firm’s degree of internationalization or higher global focus increase foreign equity commitment of Brazilian companies with foreign CEOs. The insignificance of the interaction term most probably occurred due to the sample used. Most of the Brazilian companies considered in the dataset have a native CEO, which might have reduced the ability to properly detect the effect of the interaction terms.

Nevertheless, both of the moderating variables were shown to have a significant direct effect. As expected, a firm’s degree of internationalization was positively associated to foreign equity commitment, meaning that firms with a higher proportion of foreign sales to total sales are more likely to have a higher foreign equity commitment. In addition to global

CEO non-nativity and foreign equity commitment of emerging market firms : a subsidiary level analysis of Brazilian companies