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Influence of Managerial Ownership and Compensation Structure on Establishment Mode Choice: The Moderating Role of Host Country Political Risk

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Abstract

Our study draws on arguments advanced in behavioral decision theory to examine the effects of managerial equity ownership and compensation structures on establishment mode choice (the choice between greenfield start-ups and cross-border acquisitions). It is based on a sample of 396 establishment mode choice decisions comprising of 291 cross-border acquisitions and 105 greenfield start-ups by non-diversified US manufacturing firms. Findings indicate that both managerial equity ownership and the proportion of contingent pay in key managers’ compensation structures are associated with the preference for cross-border acquisitions over greenfield ventures. Our analysis also indicates that there is a greater propensity on the part of managers with significant equity ownership to select acquisitions when entry involves host countries characterized by high political risk.

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Notes

  1. The indicators are government stability, socioeconomic pressures, investment profile, internal conflict, external conflict, level of corruption, influence of the military in politics, religious tensions, law and order, degree of tensions among ethnic groups, institutional strength and quality of the bureaucracy.

  2. In instances where firm R&D expenses were not available from Compustat, we used the average firm R&D intensity in the focal firm’s 3-digit SIC industry.

  3. While industry and year controls were incorporated in the models that were tested, they are excluded in the table for the sake of parsimony.

  4. Based on the recommendation of Aiken and West (1991), the independent variables were mean-centered prior to the computation of interaction terms.

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Acknowledgments

The authors wish to thank Editor Dr. Michael-Jörg Oesterle and three anonymous reviewers for their valuable comments and suggestions on previous versions of this article.

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Authors and Affiliations

  1. College of Business, University of Texas at Arlington, Arlington, USA

    Deepak K. Datta

  2. College of Business Administration, San Diego State University, San Diego, USA

    Martina Musteen

  3. Graduate School of Management, University of Auckland, Auckland, New Zealand

    Dynah A. Basuil

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  1. Deepak K. Datta
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  2. Martina Musteen
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Correspondence to Deepak K. Datta.

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Datta, D.K., Musteen, M. & Basuil, D.A. Influence of Managerial Ownership and Compensation Structure on Establishment Mode Choice: The Moderating Role of Host Country Political Risk. Manag Int Rev 55, 593–613 (2015). https://doi.org/10.1007/s11575-015-0250-y

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