corporate governance and international business || technological competence and international...

Technological Competence and International Diversification: The Role of Managerial IncentivesAuthor(s): Laszlo Tihanyi, Robert E. Hoskisson, Richard A. Johnson and William P. WanSource: MIR: Management International Review, Vol. 49, No. 4, Corporate Governance andInternational Business (2009), pp. 409-431Published by: SpringerStable URL: http://www.jstor.org/stable/40658324 .

Accessed: 25/06/2014 04:08

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Springer is collaborating with JSTOR to digitize, preserve and extend access to MIR: ManagementInternational Review.

http://www.jstor.org

This content downloaded from 194.29.185.25 on Wed, 25 Jun 2014 04:08:07 AMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=springer

http://www.jstor.org/stable/40658324?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Manag Int Rev (2009) 49:409-431 DOI 10.1007/sll575-009-0002-y

RESEARCH ARTICLE # mir #

Technological Competence and International *■- ■■■*■

Diversification The Role of Managerial Incentives

Laszlo Tihanyi · Robert E. Hoskisson · Richard A. Johnson · William P. Wan

Abstract:

• This paper shows that the role of managerial incentives is highlighted by a relatively complex relationship between technological competence and international diversification. By studying a sample of Standard & Poor's 500 member firms, we explore the relationships between technological competence, managerial pay, and international diversification.

• Results indicated a curvilinear relationship (an inverted U-shape) between technological competence and international diversification.

• In line with agency theory, contingent pay (stock options and bonuses) was positively related to international diversification.

• Beyond these direct effects, both contingent and non-contingent pay (cash compensation) mod- erated the relationship between technological competence and international diversification.

Keywords: International strategy · Corporate governance · Managerial compensation · Innovation

Received: 30.12.2007 / Revised: 22.10.2008 / Accepted: 22.10.2008 © Gabler- Verlag 2009

Assoe. Prof. L. Tihanyi ([x]) Department of Management, Mays Business School, Texas A&M University, College Station, USA. e-mail: [email protected] Prof. R. E. Hoskisson Jesse H. Jones Graduate School of Business, Rice University Houston, Houston, USA.

Prof. R. A. Johnson Department of Management, Robert J. Trulaske, Sr. College of Business, University of Missouri, Columbia, USA

Assoc. Prof. W. P. Wan Area of Management, Rawls College of Business, Texas Tech University, Lubbock, USA.



410 L. Tihanyi et al.

Introduction

International diversification provides an essential alternative means for firms to grow, beyond the options of internal growth and product diversification in the domestic market. Managers often pursue international diversification to gain monopolistic advantages for their firm, reduce operational risk, and lower transaction costs. International diversification also allows managers to extend their firm's capabilities (Chung/Alcácer 2002). One of the most important firm capabilities emphasized in previous research on international diversification is technological competence (Almeida 1996, Feinberg/Gupta 2004, Sanna- Randaccio/Veugelers 2007). In this line of research, technological competence represents research and development (R&D) capabilities that managers seek to extend by operating their businesses in foreign markets.

Whereas employing international diversification may be a logical option to extend technological competence, doing so is often associated with increased hazards or risks (Hitt et al. 2006). The hazards of international diversification may directly stem from the complex international environment or, perhaps equally importantly, from the poor managerial assessment of firm capabilities. The difficulties associated with the assessment of capabilities needed in the international environment indicate an enhanced role for managers in multinational firms. As such, we suggest that the level of international diversification may not always increase with growing technological competence, as the literature suggests (e.g., Franko 1989, Kobrin 1991). Managers seeking to balance the benefits and risks of both exploiting and extending their firm's technological competence may extend or limit their portfolio of international operations. This phenomenon is perhaps best described by a curvilinear relationship between technological competence and international diversification, similar to the relationship between international diversification and performance driven by higher costs (e.g., Lu/Beamish 2004). However, we contend that it is more due to risk than cost.

Previous studies on the managers' importance in multinational firms have focused on foreign market entry decisions, learning, and organizational performance (e.g., Barkema/ Vermeulen 1998, Hitt et al. 2006, Luo/Peng 1999). However, in extending this line of inquiry, our study from an agency theory perspective posits that managers can have a substantial role in assessing when international diversification extends their firm's technological competence and thus provides value for the firm's owners. Because both innovation and international diversification incur significant risks or hazards as noted above, the alignment of managerial interest with that of shareholders of the firm becomes particularly important in multinational firms (Carpenter/Sanders/Gregersen 2001, Harris/Raven- scraft 1991). Furthermore, the required specialized knowledge of the firm's technological competence and the high level of understanding of foreign markets enhance the role of managerial incentives relative to other governance mechanisms, such as monitoring (Sanders/Carpenter 1998). Thus, we think that showing how agency theory is related to the international diversification decision and how incentives might alter the relationship between technological competence and international diversification are important exten- sions to the international business literature. Figure 1 illustrates the relationships that we seek to explore in this paper.



Technological Competence and International Diversification 411

Fig. 1: The Relationship between Technological Com- petence, Managerial Pay and International Diversification

Technological competence

^''' *^£ International diversification

Managerial pay - - ""*"

Note: The dashed line suggests a moderating relationship

Even though managerial pay has been regarded as one of the most powerful incentive mechanisms to improve the assessment of environmental factors and firm capabilities (Jensen/Murphy 1990), empirical research on pay, as a mechanism to control managerial interest in international diversification, has been largely absent. We seek to contribute to the literature by examining how two different types of managerial pay, contingent pay (e.g., long-term bonuses and stock options) and non-contingent pay (e.g., cash), differ- entially influence the level of international diversification (Barkema/Gomez-Mejia 1998, Jensen/Murphy 1990). We also seek to enhance agency theory research by examining the potential moderating effect of managerial pay as a governance mechanism on the relationship between technological competence and international diversification. Thus, our study of a sample of Standard & Poor's 500 member firms provides additional evidence on the complex interplay of contributing factors leading to international strategies.

In the next section, we provide theoretical background on technological competence in the international environment as well as on managerial pay. We then develop hypotheses regarding the relationships between technological competence, managerial pay, and international diversification, including hypotheses suggesting contingent and non-contingent managerial pay as moderator variables. We conclude by discussing implications for theory and future research.

Extending Technological Competence Through International Diversification

Firms may sustain their competitive advantage as well as their capabilities by expanding their activities internationally. Whereas the early international literature was dominated by studies on market position, more recent studies have given details on how international diversification can help firms to leverage their technological competence (Tallman/Flad- moe-Lindquist 2002). Furthermore, international diversification can provide economies of scale benefits, partners, and R&D-supportive governments for spreading the cost of R&D activities (Cantwell 1989, Feinberg/Gupta 2004, Franko 1989, Kogut/Chang 1991).

Despite an advanced understanding of the importance of international diversification for technological competence, previous literature has been relatively silent about the risks of this strategy. For example, high levels of investment in technological competence may limit firms' abilities to allocate the necessary financial resources for international expansion. Technological competence may also be difficult to transfer to little known overseas markets where concerns for intellectual property rights would be more acute. Similarly, firms may experience problems when they attempt to transfer technological knowledge from foreign countries. Perhaps the main reason for the lack of consideration of the international diversification trade-offs is the exceeding focus on firm-level explanations in




previous literature. Actions of firms, however, are "a product of reflective actors con- strained and enabled by their access to authority, resources, and structural opportunities" (Kogut/Walker/Anand 2002, p. 163).

As technological intensity fosters international diversification, it concomitantly increases the potential for agency problems. A critical agency problem arises from goal incongruence between principals and agents because of the difficulty in verifying the agent's behavior. When information asymmetries are costly or difficult to overcome, incentive-based governance mechanisms may become more salient (Conlon/McLean Parks 1990, Sanders 2001). Shareholders of the firm may prefer aligning the interests of managers with that of their own by managerial compensation (Mishra/Gobeli 1998, Roth 1995). Previous studies in domestic settings have shown that different forms of managerial pay may provide incentives for managerial actions (e.g., Balkin/Gomez-Mejia 1990, Daily et al. 1998), including innovation in high-technology firms (Balkin et al. 2000). On the one hand, contingent pay has been suggested to motivate managers for the longer term (Finkelstein/Boyd 1998). For example, in a study by Kahn and Sherer (1990) executives anticipated that their performance would influence the bonus their firm pays them in the future. Moreover, Leonard (1990) found that contingent pay is a more effective motivator of executives than their promotion. Non-contingent pay, on the other hand, is expected to generate managerial interest for the shorter term, although results on the effectiveness of cash compensation as a governance mechanism have been mixed (Jensen/Murphy 1990, Gomez-Mejia/Tosi/Hinkin 1987).

Managerial compensation alone may not eliminate the problem of asymmetric information between owners and managers but it may ensure that the link between technological competence and international diversification is more optimally managed. Accordingly, we seek to contribute to the working knowledge of behavioral agency theory by examining the direct and indirect effects of managerial pay in relation to technological competence and international diversification.

Hypotheses

The Effect of Technological Competence

Managers with a focus on their firms' technological capabilities in general have a strong strategic motivation to pursue international diversification (Hitt et al. 2006). Based on results from firms operating in 15 countries between 1960 and 1986, Franko concluded that firm R&D "emerges as a principal, perhaps the principal, means of gaining market share in a global competition" (1989, p. 470). Often the scale of R&D in domestic businesses requires managers to amortize their firms' expenses across a larger customer base and recover investments before the technologies become obsolete (Kotabe 1990). Interna- tional diversification from this point of view helps firms to acquire additional resources, sell new products and services, and re-invest income streams from current innovations (Delios/Beamish 1999, Hitt/Hoskisson/Kim 1997).

Despite the intrinsic need for innovative firms to increase their international expansion, it is conceivable that there is an inflection point in the relationship between technological




competence and international diversification. As managers confront a number of potential problems, they may begin to limit their firm's further expansion into foreign markets. Setting up new operations in foreign countries and managing a dispersed portfolio of foreign operations, for example, is inherently expensive (Geringer/Beamish/daCosta 1989). Along this line, Feinberg and Gupta (2004) found that if firms already have a

large number of R&D units in foreign locations, the addition of new R&D units starts to become less attractive. It is conceivable that managing an increasingly dispersed portfolio of foreign R&D units, compared to just sourcing or production operations, would pose an even greater challenge to most firms. Furthermore, the risks of technological expro- priation by competitors may increase by additional international expansion (Barkema/ Vermeulen 1998). Thus, firms having proprietary technology may limit investing in additional countries owing to the risk of leakage of their valuable know-how, especially when they expand further into emerging and transition economies (Tihanyi et al. 2003). Viewed in this light, even if a firm's management has strong incentives to pursue international diversification to sustain technological competence, it is likely that at a certain point the increase in international diversification will taper off. Therefore,

Hypothesis 1: The relationship between technological competence and international diversification is curvilinear (an inverted U-shape).

Contingent and Non-Contingent Managerial Pay Effects

The proposed curvilinear relationship above indicates an enhanced role for managerial incentives. Managers may in particular face ambiguity when they attempt to extend the scale of their firms' R&D by pursuing international diversification. They may want to amortize the costs of R&D or find new capabilities, but international diversification may not always be the appropriate solution. The potential weight of managerial actions under these uncertain conditions provides a basis for corporate governance. We suggest that the

managers' willingness to increase their firms' international diversification would differ depending not only on the level of compensation they receive but also its form, contingent or non-contingent pay.

Contingent pay may be an appropriate incentive to managers to seek new international markets for their firm. International diversification in general provides long-term opportunities for firms to extend their customer base, to acquire resources, or to hire talent for future growth. Stock options may reduce the potential agency conflict between managers and shareholders with a long term interest in investing firms with higher international diversification (Harris/Ravenscraft 1991). Contingent pay may also facilitate prudent managerial assessment in the case of international diversification because of the difficulties associated with monitoring overseas operations (Roth/O 'Donnell 1996) and the increased information asymmetry regarding foreign operations between managers and shareholders (Ellstrand/Tihanyi/Johnson 2002). Furthermore, contingent pay can be an effective incentive for managers with increased discretion over a broad scope of international operations (Finkelstein/Boyd 1998, Hambrick/Abrahamson 1995, Leonard 1990). Thus, we suggest:




Hypothesis 2: There is a positive relationship between contingent pay and international diversification.

Cash compensation provides a stable income stream to managers with little incentive for their higher efforts in identifying new opportunities (Kahn/Sherer 1 990). Thus, when managers concentrate on annual results, increased international diversification may adversely impact the scope of their required managerial tasks. Firms may face higher costs when they expand their business internationally, especially, when they operate in unfamiliar country environments. These costs can be attributed to increased organizational complexity, market-related uncertainties, hostility, and lack of knowledge of local institutions (Hitt et al. 1997). Given these new challenges in the international environment, non-contingent pay may not provide appropriate incentives for managers to expand their businesses into foreign markets. Furthermore, prior research in domestic settings indicates that the focus on short-term incentives may induce managers to limit the diversified scope of the firm (Baysinger/Hoskisson 1990). Limiting the scope of international diversification may be a particularly effective means of cost savings in the short term. Thus, given their already secure cash compensation, managers may not have a strong incentive to increase the scope of their firms' international operations. Therefore,

Hypothesis 3: There is a negative relationship between non-contingent pay and international diversification.

The Moderator Effect of Managerial Pay

In addition to its direct link with international diversification, managerial pay is likely to be a crucial indirect component when the relationship between technological competence and international diversification is considered. Previous research indicates that managerial compensation is a relevant governance mechanism for innovation strategies, particularly in the cases of new product intensity and R&D activity (Hoskisson et al. 2002). Managers receiving higher levels of stock options and bonuses are in general expected to be interested in their firms' international diversification (e.g., Sanders/Carpenter 1998), and thus facilitate the extension of their firm's technological competence by additional foreign expansion. In contrast, when managers receiving non-contingent pay are already faced with increased complexity in managing innovative firms, they would be especially hesitant to manage additional international operations.

The level of risk managers perceive may influence their predisposition toward accept- ing further risk (Guay 1999, Lubatkin/Chatterjee 1994, Miller/Wiseman/Gomez-Mejia 2002). Beatty and Zajac (1994), for example, found that managers of firms with a high degree of perceived risk prefer less incentive based (contingent) compensation. Invest- ing in different countries around the world may be seen by managers with contingent pay as an opportunity for risk reduction for their firms with heavy R&D investments (Agmon/Lessard 1977). Because managers may make less risky decisions at the margin given the curvilinear nature of the proposed relationship of technological competence and international diversification, less risky decisions may still be encouraged with contingent pay incentives.




Perceiving favorable environmental conditions in regard to currency and domestic equity values may enhance the above scenario. For instance, if the home country has a strong currency relative to other countries (e.g., the effects of Asian currency crisis for U.S. firms) and equity values are high domestically; international diversification might be increased because the economic situation provides such an opportunity. This is especially true if there are still resources available to invest in a broader set of countries in which to spread the cost of creating technological assets. Although international diversification to extend technological competence may level off at some point, we expect that contingent pay provides an incentive for managers to curtail this risk such that the negative slope of an inverted-U curvilinear relationship will be lessened. In other words, managers would be induced by contingent pay to sustain the efforts to extend their firms' technological competence internationally, in a sense stretching the risk tolerance level. Therefore, high levels of contingent pay may weaken the curvilinear relationship between technological competence and international diversification. Hence, we posit:

Hypothesis 4: The curvilinear relationship between technological competence and international diversification becomes weaker at higher levels of contingent pay.

Previous literature suggests that non-contingent compensation in general does not expose managers to the same degree of risk or offer the same rewards as contingent pay does (Daily et al. 1998). Managers rewarded primarily with non-contingent compensation do not normally participate in the upside of risky strategies. Accordingly, when their firm's investment in technological competence is high, they may seek to minimize the costs of overreaching through international diversification. As such, non-contingent pay may lead more loss-averse among managers (Wiseman/Gomez-Mejia 1998).

Because managers receive no compensation for taking on additional risk, they may be more sensitive to perceptions of additional risk which may lead to potential failure and loss of reputation. In other words, the non-contingent incentive makes them more loss averse and they perceive more risk associated with international diversification than do those who have incentives that emphasize continent pay. Thus, it is not that the international diversification decision is more risky, but that managers' perceptions change given the type of incentive that is emphasized. Accordingly, non-contingent pay may result in managers considering the potential limitations of international diversification, especially when seeking to extend their firm's technological competence. Because their pay incentive does not reflect the necessary risk-considerations, they would pursue lower levels of international diversification in their firms. Therefore,

Hypothesis 5: The curvilinear relationship between technological competence and international diversification becomes stronger at higher levels of non-contingent pay.




Methods

Sample

The sample of 156 firms for our study was drawn from the list of 2002 Standard & Poor's (S&P) 500 on the COMPUSTAT Annual Data Tape and the COMPUSTAT Busi- ness Segment Tape. To increase the validity of our dependent variable, we included firms in our study that reported data on three different indicators of international diversification, including assets, sales, and subsidiaries. These data as well as the required R&D data were available only for 156 firms out of the potential sample owing to the limitations of the COMPUSTAT dataset. We conducted t-tests on differences in firm size, leverage, and performance between our sample and the S&P 500. The tests were not statistically significant suggesting that our sample was not biased along the dimensions examined. Furthermore, the sample represents firms from 84 different 4-digit SIC code industries ranging from SIC codes 1311-9997.

Measures

Dependent Variable

Prior studies on international diversification have recommended the use of multiple measures to improve validity (Hitt et al. 2006, Sullivan 1994). Consistent with prior research, we measured international diversification by averaging three widely-used measures: 1) firm sales from foreign operations divided by total firm sales, 2) foreign assets divided by total assets, and 3) the number of foreign subsidiaries divided by the total number of subsidiaries. The results of a factor analysis indicated that these three individual variables loaded on the same factor. The factor loadings for the three measures were 0.89 (foreign sales per total sales), 0.66 (foreign assets per total assets), and 0.83 (foreign subsidiaries per total subsidiaries); the Cronbach-alpha for the factor was 0.71, indicating a moder- ately low level of reliability of our composite measure. Sales and assets figures from foreign operations and subsidiary data were obtained from Worldscope and Compact Dis- closure in 2001 and 2002. Total sales and assets data were obtained from COMPUSTAT for the same year.

Independent Variables

Technological competence was measured as firm R&D expenditures divided by total firm sales. We collected these data from COMPUSTAT for 1999. Managerial pay data were collected for members of the top management team, including the CEO, in each firm. The literature on managerial pay covers management, finance, labor economics, and other areas resulting in the development of a wide range of available valid measures (Bloom/Milkovich 1998, Kahn/Sherer 1990, Leonard 1990, Murphy 1999). We included two measures of managerial pay used in previous studies: Non-contingent pay (salary and other annual cash compensation) and contingent pay (stock options). These measures enabled us to assess the impact of short-term and longer-term incentives on interna-




tional diversification (Daily et al. 1998). Non-contingent pay was collected from the S&P

ExecuComp and proxy statements for 1999. Managerial stock options were valued using the Black-Scholes method as provided by S&P ExecuComp dataset. Stock option data were also collected from the S&P ExecuComp dataset for 1999.

Control Variables

In addition to their technological competence, firms may increase their international diversification to acquire knowledge from innovative environments of different countries.

Locating plants in countries with favorable or sophisticated R&D environments may help firms to sustain their competitive advantage (Cantwell 1989, Furman/Porter/Stern 2002, van Pottelsberghe de la Potterie/Lichtenberg 2001). Thus, we included a variable in our models to control for the effect of country R&D environments. Of the measurement

options available to us, Technology Achievement Index (TAI), developed by the United Nations Development Program (UNDP), offered the best measurement opportunity. Pub- lished first in 2001 by the UNDP, TAI measures the technological competence of 72 countries from 1995 and 2000. TAI is a composite of four technological capacity dimensions measured by two indicators each, such as creation of technology (patents granted per capita, receipts of royalty fees and license fees from abroad per capita), diffusion of old innovations (internet hosts per capita, high- and medium-technology exports as a share of all exports), diffusion of new innovations (logarithm of telephones per capita, logarithm of electricity consumption per capita), and human skills (mean years of schooling, gross enrollment ratio at tertiary level in science, mathematics, and engineering).

In a recent study, Archibugi and Coco (2004) found high correlation between TAI and the World Economic Forum's Technology Index (WEF) (0.93), TAI and the Science and

Technology Capacity Index (SCTI) (0.95), and TAI and ArCo, an index developed by the authors (0.98). These results indicated that TAI provided a comparable estimate of coun-

try technology environment to those of other measures. We constructed our control variable of country R&D environments by using the weighted average of TAI for each firm. We used the number of subsidiaries the firm had in each country as our weight. Subsidiary data were collected from Compact Disclosure for 2000.

In addition to country level R&D, CEO international experience has been shown to

impact international diversification (Carpenter/Sanders/Gregersen 200 1 , Sambharya 1 996, Takeuchi/Tesluk/Yun 2005). We operationalized CEO international experience using two indicators: 1) whether the CEO has international work experience and 2) whether they had international education experience (e.g., Tihanyi et al. 2000). International work

experience data was coded from Dun & Bradstreet's Reference Book of Corporate Man-

agements from 1999. In cases where international work experience was evident the variable was coded "1" otherwise the variable was coded "0." CEO educational experience was also coded from the Reference Book of Corporate Managements in a similar fashion. In cases where one or both CEO international work experience and CEO international education were present then CEO international experience was coded "1."

Prior research suggests that managers with higher equity holdings tend to have an increased interest in firm strategies, including international diversification (Eisenmann 2002, Sanders/Carpenter 1998). We included managerial ownership, measured by the




percentage of managerial equity holdings of total equity holdings, as a control. This variable was collected from proxy statements from 1999. The board of directors may also influence the level of international diversification in their governance role as a monitoring mechanism (Rediker/Seth 1995). Because outside directors may be better able to repre- sent the interest of shareholders (e.g., Rechner/Dalton 1991), the outside director ratio of the board of directors was included as a control variable in our analysis. This variable was measured as the number of directors not employed by the firm divided by the total number of directors. We excluded directors with an affiliation as specified by the SEC Regulation 14 A, Item 6(b), as such affiliation has been known to limit impartiality of a director (Daily 1996). Board of director data were collected from Compact Disclosure and proxy statements for 1999.

The presence of large institutional holdings may also motivate firms to extend their levels of international diversification (Tihanyi et al. 2003). Institutional ownership was the ratio of shares held by large institutional holdings to total shares outstanding in 1999. We collected these data from Compact Disclosure. The monitoring of the board might be reduced when the CEO presides over the board (Rechner/Dalton 1991). Prior research indicates that duality facilitates decision making by establishing a unified chain of command, whereas others suggest that separating the CEO and chair positions improves the corporate decision-making process through shared responsibility (Finkelstein/D'Aveni 1994). We expected that CEO duality would reduce the level of international diversification (e.g., Ellstrand et al. 2002). We coded CEO duality as a "1" when the CEO also served as chairperson of the board and a "0" when different individuals served as CEO and board chairperson. CEO duality data for 1999 were also collected from Compact Disclosure.

International diversification requires substantial capital for new plants, (domestically unavailable) human resources, and information systems owing to increased organizational complexity (Dunning 1993, Kotabe 1990). For example, large firms tend to have the resources to be more internationally diversified (Tallman/Li 1996, Wolf 1977). Accord- ingly, we controlled for firm size as measured by the logarithm of total employees. Prior research has found that firm performance may be associated with international diversification (e.g., Gomes/Ramaswamy 1999, Lu/Beamish 2004). For instance, firms with abundant resources may be able to cover the potential costs of doing business globally. Thus, we included firm performance as a control variable, measured by return on assets (ROA). Firms may also enter foreign markets to offset their problems in the domestic markets, such as low performance and high debts (Shapiro 1982). We included firm leverage, measured by debt/sales, as a control variable. In all cases the Compustat data was collected for the year 1999.

Lastly, differences in demand conditions, market characteristics, and government regulations across countries may lead to different motivations for firms to international- ize across industries (Chung 2001). Industry dummy variables, based on their 4-digit SIC codes were included as controls, using eight industry groups: extractive, processing, equipment manufacturing, electrical/electronic equipment, textiles/apparel, consumables, software/business services, and trade. Effect coding was used because we had no prefer- ence to select any industry as a reference group (Kerlinger/Pedhazur 1973).




Hierarchical regression was used to estimate all models. To test hypotheses involv- ing curvilinear and curvilinear/linear interactions we followed the procedure outlined in Cohen, Cohen, West, and Aiken (2003). Within this procedure, control variables were entered first (Model 1), linear terms of technological competence and the effects of contingent and non-contingent forms of pay were entered next (Model 2), followed by the squared-term of our technological competence variable (Model 3). The curvilinear interactions between managerial pay and technological competence were entered in sub- sequent models (Models 4-6). Curvilinear interactions were tested and interpreted fol- lowing the steps in Cohen et al. (2003).

Results

Table 1 presents the means, standard deviations, and correlations for all the variables. All variables used to test the interaction hypotheses were centered in order to allevi- ate the potential problem of multicollinearity resulting from the multiplication of the variables (Aiken/West 1991). We report non-centered means and standard deviations in Table 1 to simplify interpretation and to facilitate further analyses. Examination of vari- ance inflation factors (VIF) indicate that some collinearity is present though the levels are not extreme considering the complex nature of the interactions. In Model 6, two of the standardized regression coefficients with values over 1 slightly exceed the VIF threshold of 10.0. As noted by Cortina (2002) regression coefficients greater than 1 may not indica- tive of a serious problem if complex interactions are being estimated. In these cases it is important to follow procedures designed to take the effects of collinearity into account, including centering variables and entering interactions one at a time (Cohen et. al. 2003, Cortina 2002).

In order to evaluate the impact of the lag period we estimated models using three different lag periods: 1.5, 2.5 and 3.5 years respectively. As noted above, independent and control variable data were collected for 1999. To test for sensitivity to our reported lag period we collected international diversification data for two additional time periods 2000-2001 and 2002-2003). Results are very consistent across all three lag periods though the relationships are slightly weaker using the shortest lag (1.5 years). We chose to report the findings from the 2.5 year lag in the results section below.

Results of the hierarchical regression used to test the hypotheses are presented in Table 2. Model 1 included the control variables. Although all the industry dummy variables were included in the regression model, they are not reported in the table, as none of the coefficients were significant. As expected, managerial equity ownership, and CEO international experience were significant and positive predictors of international diversification. Marginal positive effects were found for board outsider ratio indicating the interest in shareholders in international diversification. Country R&D environment was a negative predictor of international diversification, contrary to our expectation. These results may suggest that the international diversification of our sample firms takes place in countries with less sophisticated R&D environments. Although firm performance is not significant in Model 1, it becomes negative and significant in other models, suggesting that




"c/3

I

S § CO

Ο 'S

I î I

|

©s OOIO^-h^-hOO'-hOOVOOOn

^

Q ^h Tfr rt ;^ ρ rn (N | O Ο; > ^h coöööööööööö

00

ÄÖÖÖÖÖÖÖÖr^vo

ä I |il lîL III 2

ilflliiifll =

vo

Ö 00 I

Q ^ «η Ο <N Ο -^ ^ ^ Ο ^ 2o coöööööööööö öö t^ I

»o »n on

Ö Ö Ö NC I

»O tJ- ^h m ^ ρ pp β ö ö ö ö

Sö^öööööööö p2ppp ö ö ö ö ö

η ο ρ ρ ^ ρ ? ö ? ? ? d

fv.» ^H ^H Tf fN| ^-H ΓΛ <ü pp'-'p^^'-^

c *-c ööoöoöo .§ c *-c

S .§ ^ iii

îg IS *S »β ox öööööööö g

IS 'S ^5 2 -îa W ^ ill il

■í-aí&íll 11 11 si-J 73ft-^§ • Iflil'illll « lä SJlÎS-iJfS £ i 1 1 1 1 1 1 1 s i s ísâlllíllásâleôa > £ £ Ε Ε S Ο S U U U > ~η' <ν en Tt «η νο Κ οο' os




|

Ö g

2 «fa Ο - VO ^ ^1 ^"! ^. G

r- ο ο ο ο 1 "§ 2£gS "g

νΛ Ö Ö Ö Ö ο ^-H Ι Ο

m <n ^ oo ο ^ q q q ρ ^ g l/> Ö Ö Ö Ö Ö & ^ ' ' '

S tJ- 00 vo in <N >- ι ^ a > -* ^h ^ q q g

s ? ? ? ö °" ? s (NO ^r-nq ^ ^ OJ

2 ???fö?f § rn ^P (N^h^ q q -g

2 f ff f?f ? d &

oovom Ott ooor^- r»» ^ ^"ã q q q q q <d ~< & q cn ^ &

o ööo öö ööö ö ö t|.S o S III S* «> oo orno ^hO' ^r-rn m on J£-»-> q q q ^ PP <ΊΡΡ ^ Ρ m^

ô ooo oo ooo ο ο ο

Ι as om^ m«o Tf^-Hrf on t^- Sill! ^ ^_q pp pq-H q ^ *£^ ö ööö öö ööö o o ^h oo I I I * 3 2 S S S SS 8q§ 2 2 1 |

^ ö ooo öö ööö ο ο ι ^

00 Ô»n m^-H tJ-(NOn On ^ 00 Ό o q -h ^ q ^ q q q q q "S « ö ööö öö ööö ö ö <L>fc ^ I III I I £ ©

S SSS 55 S22 2 g 2 g ö ööö öö ööö ö ö o'js S SSS 2§ =S2 5 S 11

ô ooo oo ooo ο ο - I 5 ^δο S3 2 52 2 S il Ö ÖÖ| ÖÖ ÖÖÖ Ö Ö 5*^3 *> ι ι ι ι 2 S

q qqq P^ ^ o ,- · rn vq ^5 Ö ÖÖÖ ÖÖ ÖÖÖ Ö Ö ^^Τ3 « <s II Ι Ι ο ^^Τ3 « ^ »o »nmr^ OO >/">»r>T3- »- · tj- ac^ ^ qqq ^^h ô(N ro q λλο> ö ööö öö ööö ö ö ^2b 1 ' _. 1 II

« g-siiîif il i jiê-f νίι il llflIJ-liílSi^SSílii «

11




Table 2: Results of the Hierarchical Regressions Estimating the Effects of Technological Compe- tence and Managerial Pay on International Diversification

Dependent Variable: Modell Model 2 Model 3 Model 4 Model 5 Modelo International Diversification Firm Size -0.07 -0.12 -0.13 -0.14 -0.15 -0.18+ Firm Performance -0.08 -0.14^ -0.16* -0.17* -0.15* -0.16* Firm Leverage -0.13 -0.13 -0.12 -0.11 -0.10 -0.07 Managerial Ownership 0.20* 0.1 5f 0.13* 0.12 0.09 0.09 Outside Director Ratio 0.14f 0.06 0.06 0.05 0.03 0.09 Institutional Ownership 0.11 0.05 0.03 0.03 0.03 0.03 CEO Duality -0.06 -0.04 -0.04 -0.04 -0.05 -0.04 Country R&D Environment -0.26" -0.2 Γ* -0.20* -0.19* -0.19* -0.20** CEO International Experience 0.22** 0.18* 0.16* 0.17* 0.15* 0.15* Technological Competence 0.17* 0.33** 0.38** 0.52*** 0.57** Contingent Pay 0.30*** 0.29*** 0.29*** 0.09 0.07 Non-Contingent Pay -0.01 0.01 0.01 -0.01 0.14 Tech, Comp. Squared -0.27* -0.23* -0.98*** -1.17*** Tech. Comp. X Contingent Pay -0. 1 8! -0.42** -0.44** Tech. Comp. X Non Cont. Pay 0. 1 6* 0.09 0.28* Tech. Comp. Sq X Cont. Pay 0.93*** 1 .06*** Tech. Comp. Sq X Non Cont. Pay -0.30* Model R2 0.194 0.288 0.320 0.343 0.391 0.413 Adjusted R2 0.101 0.188 0.219 0.235 0.285 0.305 Model F-Statistic 2.09* 2.89*** 3.18*** 3.16*** 3.68*** 3.83*** Change in R2 0.194 0.094 0.032 0.023 0.048 0.022 F-Statistic for Change 2.09* 5.97*** 6.38* 2.36* 10.33** 4.82* N= 156. t p<0.10.

* p<0.05,

** p<0.01, ***p<0.001.

firms in our sample may use international diversification as a means to improve their performance.

Hypothesis 1 predicted that technological competence would exhibit a curvilinear (inverted U-shaped) relationship with international diversification. The statistically significant change in R2 of 0.032 between Model 2 and Model 3 (F= 6.38, p< 0.05) coupled with the positive and significant linear coefficient (/?=0.33, p< 0.01) and the negative and significant coefficient of the squared-term (/?= -0.27, /?< 0.05) in Model 3 in Table 2 indicate support for Hypothesis 1 .

Hypothesis 2 predicted a positive relationship between contingent pay and international diversification. These results are reported in Model 2 in Table 2. The change in R2 between Model 1 and 2 was 0.094 (F= 5.97, p< 0.001). The positive and significant coefficient (/?= 0.30, p< 0.001) in Model 2 indicates support for Hypothesis 2. Non-contingent pay (Hypothesis 3) was hypothesized to have a negative relationship with international diversification. Results from Model 2 indicate no significant relationship between non-contingent pay and international diversification. Therefore, Hypothesis 3 was not supported.




Models 4-6 were used to test the moderator effects of contingent and non-contingent managerial pay on the relationship between technological competence and international diversification. The significant change in R2 of 0.048 between Model 4 and Model 5 (F= 1 0.33, p< 0.01) indicates a moderator effect of contingent pay over the control variables and the direct effects of our independent variables. The coefficient of the interactive term of technological competence-squared and contingent pay was positive and significant (yß=0.93, p< 0.001) in Model 5, thus Hypothesis 4 received support. This result indicates that the curvilinear relationship between technological competence and international diversification becomes weaker at higher levels of contingent pay. A graph depict- ing the relationship is presented in Fig. 2.

The significant change in R2 of 0.022 between Model 5 and Model 6 (F=4.82,p<0.05) together with the negative and significant coefficient (/?=-0.30, p<0.05), indicates a

Fig. 2: The Moderator Effect of Contingent Pay on the Relationship between Technological Com- petence and International Diversification




Fig. 3: The Moderator Effect of Non-Contingent Pay on the Relationship between Technological Competence and International Diversification

moderator effect of contingent pay over the effects of other variables on international diversification. These results provide support for Hypothesis 5. Specifically, the curvilinear relationship between technological competence and international diversification becomes stronger at higher levels of non-contingent pay. Figure 3 presents a graph of the interaction plot.

As noted above we examined the sensitivity of our results to the lag period used. Data for the independent variables were collected for two additional time periods. Results of our main effect hypotheses were similar to our results using 1999 data and a 2.5 year lag. Interestingly, we found additional support for the negative effect of non-contingent pay on international diversification in our earlier sample (Hypothesis 3). Next, we discuss the implications of these results.

Discussion

We found supporting evidence in this study that both technological competence and managerial pay are related to international diversification, and that the relationships are more complex than previously understood. These results contribute to international business research in different ways. Previous studies considered international diversification as a




never-ending process and paid relatively less attention to its limits. Our findings of the curvilinear relationship suggest that the advantages of international diversification (e.g., Almeida 1996, Chung 2001, Sanna-Randaccio/Veugelers 2007) may not be unlimited for firms when they extend their technological competence. When firms operate in many locations, their managers may begin to feel that additional expansion overseas would strain the coordination and control abilities of their firms. The benefit of maximizing firm

capabilities may also taper off for technology firms because strong technological competence does not necessarily entail superior competitive advantage in many less-developed countries. Thus, this more complex relationship between technological competence and international diversification points toward an increased role for managerial discretion.

In contrast to prior international business literature relying largely on firm-level or

country level explanations for international diversification, we emphasize the roles of

managers and their motivations. Specifically, our focus on managerial incentives con- tributes to the managerial decision making perspective of foreign direct investment (e.g., Aharoni 1966) from an agency theoretic point of view. Results of this study indicate that

managerial incentives (as collective members of the top management team) are associated with firms' level of international diversification beyond the effects of technological competence. The positive relationship between contingent pay and international diversification indicates that this form of incentive induces managers to focus more on the

potential benefits of international diversification even though such strategy may incur costs and raises complexity.

We also found that contingent pay weakens the curvilinear relationship between tech-

nological competence and international diversification. This finding represents another

meaningful extension of international business research. It indicates a substantial governance role for contingent pay to facilitate the relationship between international diversification and technological competence. Even though the potential hazards of high levels of international diversification are especially salient for technological advanced firms, these

managers would be willing to take on additional risks by continuing to pursue international expansion in order to realize the benefits of their contingent compensation.

In contrast to contingent pay, non-contingent pay was found to strengthen the curvilinear relationship between technological competence and international diversification. If

managers are mainly compensated by non-contingent pay, they appear to be aware of the limits of international diversification for technology competent firms. To the extent that

high levels of international diversification may jeopardize the overall operations of the whole firm, these managers would want to limit their firm's exposure to often uncontrol- lable international hazards. Because their pay is not tied to risks, the potential benefits of international diversification would matter less to these managers whereas the potential problems would seem to matter more.

The results on the effect of contingent pay on international diversification and the significant moderator effects of different forms of managerial pay contribute to the behavioral stream of agency theory. Whereas managerial pay has been viewed as an essential governance mechanism, empirical findings regarding its role and effectiveness have been mixed. Emphasizing the relevance of managerial pay in the international context is important considering the growing scope of international business activities and the level of complexity associated with such activities. Studying the effectiveness of governance




mechanisms in multinational firms, including the role of managerial pay, may open up new directions for agency theory research.

The point is particularly emphasized in our finding for Hypothesis 4 and 5. These results suggest that the curvilinear (inverted U-shape) relationship between technological competence and international diversification can be softened through the manipulation of contingent pay (see Fig. 2) and strengthened through the manipulation of non-contingent pay (see Fig. 3). Thus, how managers are motivated through the compensation structure is likely to have a significant effect on the ultimate strategic relationships that evolve in a firm. Thus, paying attention to the behavior consequences of incentives is an important strategic issue for both theory and practice in understanding and governing a multinational firm's strategic approaches.

Limitations and Future Research

Although our results have offered a glimpse of the complex relationships across firm- and managerial-level variables, it is possible that the relationships we examine take time to develop. Therefore, the selection of the lag period used may affect results. In order to test how sensitive our results are to the lag structure of our design, we collected international diversification from two additional time periods. Results from estimated models, however, were quite consistent across the three lag periods. The most obvious differ- ence was the weaker but still marginally significant results associated with the shortest lag period (1.5 years). This result suggests that time is an important issue and that the impact of managerial incentives and technological opportunity on the decision to change the level of international diversification takes several years. Results from the two other lag periods were consistent indicating that it may take somewhere between 2.5 and 3.5 years for changes to take place. Further research using longitudinal data and different levels of analyses over a longer time frame could help to further clarify the directions of the relationships among the variables and provide additional interesting explanations for the specific effects of different forms of managerial pay beyond the direct and moderator relationships we found. For example, although we could not test the possibility that international diversification may influence pay (a reverse causal relationship) (e.g., Jin 2002), future research might address this issue.

There also might be other managerial, organizational, and environmental factors in play in relation to international diversification beyond the joint effects of technological competence and managerial pay. Managers, for instance, may rely on outside experts to assess technological competence of different country environments or learn from their existing partners and competitors when entering international markets. Additional organizational factors for international diversification may include motivations to find new markets and resources, improve operational efficiency, or the learning of new skills (Nachum/Zaheer 2005). Another area for future research is the in-depth study of international R&D environments. Because our main focus in this study was technological competence of the firm, we concentrated on examining the role of managerial incentives in extending firm capabilities with international diversification. We used country R&D environment only as a control variable. However, it is possible that managerial incen-




tives are important in identifying favorable R&D environments in foreign countries. The growing literature on knowledge acquisition in the international environment could particularly benefit from the consideration of managerial incentives in selecting international locations for innovation.

The underlying assumption of agency theory research is the influence of managerial perceptions and actions by appropriate governance. We included a variable on CEO experience and found its significant association with international diversification. However, governance research does not normally examine directly how managers and top management teams view opportunities and implement strategies in the international marketplace. Given the illustrated role of managerial incentives, future qualitative studies may provide additional in-depth evidence on how managers extend their firms' capabilities by diversi- fying into different countries.

In the present study, we focused on the role of managerial pay as a potentially relevant governance mechanism in international business situations. Improving the effectiveness of corporate governance mechanisms, nevertheless, is one of the most challenging tasks for both researchers and practitioners. Thus, future research would do well by outlin- ing the complex effects of different governance mechanisms and studying the relationship between owners and managers during the implementation of critical strategies. For example, analysts and investors face difficulties in evaluating firms in R&D settings (Useem 1996). As a result, one would expect investors to discount high-tech investments. However, managers with contingent pay, especially stock options, would likely be interested in reducing such information asymmetry. This might be done through signaling to investors that the firm has more value in its R&D activities than assumed by the market. Stock repurchasing programs may be one signal to reduce this asymmetry. Interestingly, Sanders and Carpenter (2003) found that such signals were more salient if managers had contingent pay. Future research might address whether signals to expand internationally are another way to reduce information asymmetry between owners and managers of the firm.

Conclusion

This study has added to the international business and agency theory literatures by a joint study of technological competence and managerial compensation in relation to international diversification. By adopting a behavioral agency theoretical perspective, we found new evidence that, beyond the curvilinear effects of technological competence, different forms of managerial pay have different effects on international diversification. These results offer some promising lines for future research. Researchers could address additional environmental issues such as the characteristics of country environments that facilitate the development of technological capabilities. The complexity of relationships in this study and the expected change in the effects of pay over time provide additional motivations for firm owners to be vigilant in regard to setting pay policies for managers, board members, and others responsible for international strategies.




Acknowledgements: We thank Lorraine Eden, Michael A. Hitt, and Stephen Tallman as well as the editors and anonymous reviewers of the mir Focused Issue for their helpful comments and suggestions.

References

Agmon, T./Lessard, D., Investor Recognition of Corporate International Diversification, Journal of Finance, 52, 4, 1977, pp. 1049-1055.

Aharoni, Y., The Foreign Investment Decision Process. Boston, Massachusetts: Harvard Business School 1966.

Aiken, L. S./West, S. G., Multiple Regression: Testing and Interpreting Interactions, Newbury Park California: Sage 1991.

Almeida, P., Knowledge Sourcing by Foreign MNEs: Patent Citation Analysis in the US Semicon- ductor Industry, Strategic Management Journal, 17, Winter, 1996, pp. 155-165.

Archibugi, D./Coco, Α., A New Indicator of Technological Capabilities for Developed and Devel- oping Countries, World Development, 32, 4, 2004, pp. 629-654.

Balkin, D. B./Gomez-Mejia, L. R., Matching Compensation and Organizational Strategies, Strate- gic Management Journal, 11,2, 1990, pp. 153-169.

Balkin, D. B./Markman, G. D./Gomez-Mejia, L. R., Is CEO Pay in High-Technology Firms Related to Innovation?, Academy of Management Journal, 43, 6, 2000, pp. 1 1 18-1 129.

Barkema, H. G./Gomez-Mejia, L. R., Managerial Compensation and Firm Performance: A General Research Framework, Academy of Management Journal, 41, 2, 1998, pp. 135-145.

Barkema, H. G./Vermeulen, F., International Expansion through Start-Up or Acquisition: A Learn- ing Perspective, Academy of Management Journal, 41, 1, 1998, pp. 7-26.

Baysinger, B. D./Hoskisson, R. E., The Composition of Boards of Directors and Strategic Control: Effects on Corporate Strategy, Academy of Management Review, 15, 1, 1990, pp. 72-87.

Beatty, R. P./Zajac, E. J., Managerial Incentives, Monitoring, and Risk Bearing: A Study of Execu- tive Compensation, Ownership and Board Structure in Initial Public Offerings, Administrative Science Quarterly, 39, 2, 1994, pp. 313-335.

Bloom, M./Milkovich, G. T., Relationships among Risk, Incentive Pay, and Organizational Per- formance, Academy of Management Journal, 41, 3, 1998, pp. 283-297.

Cantwell, J., Technological Innovation and Multinational Corporations, Oxford: Basil Blackwell 1989.

Carpenter, M. A./Fredrickson, J. W., Top Management Teams, Global Strategic Posture, and the Moderating Role of Uncertainty, Academy of Management Journal, 44, 3, 2001, pp. 533-545.

Carpenter, M. A./Sanders, W. G./Gregersen, H. B., Bundling Human Capital with Organizational Context: The Impact of International Assignment Experience on Multinational Firm Perform- ance and CEO Pay, Academy of Management Journal, 44, 3, 2001, pp. 493-511.

Chung, W, Identifying Technology Transfer in Foreign Direct Investment: Influence of Industry Conditions and Investing Firm Motives, Journal of International Business Studies, 32, 2, 2001, pp. 211-229.

Chung, W./Alcácer, J., Knowledge Seeking and Location Choice of Foreign Direct Investment in the United States, Management Science, 48, 12, 2002, pp. 1534-1554.

Cohen, J. et al., Applied Multiple Regression/Correlation Analysis for the Behavioral Sciences, 3rd ed., Mahwah, New Jersey: Lawrence Erlbaum Associates 2003.

Collis, D. J., A Resource-Based Analysis of Global Competition: The Case of the Bearings Industry, Strategic Management Journal, 12, SI, 1991, pp. 49-68.




Conlon, E. J./McLean Parks, J., Effects of Monitoring and Tradition on Compensation Arrange- ments: An Experiment with Principal-Agent Dyads, Academy of Management Journal, 33, 2, 1990, pp. 603-623.

Cortina, J. M, Big Things Have Small Beginnings: An Assortment of "Minor" Methodological Misunderstandings. Journal of Management, 28, 3, 2002, pp. 339-362.

Daily, CM., Governance Patterns in Bankruptcy Reorganizations, Strategic Management Journal, 17,5, 1996, pp. 355-375.

Daily, C. M./Certo, S. T./Dalton, D. R., International Experience in the Executive Suite: The Path to Prosperity?, Strategic Management Journal, 21,4, 2000, pp. 515-523.

Daily, C. M. et al., Compensation Committee Composition as a Determinant of CEO Compensa- tion, Academy of Management Journal, 41,2, 1998, pp. 209-220.

Delios, A./Beamish, P. W., Geographic Scope, Product Diversification, and the Corporate Perform- ance of Japanese Firms, Strategic Management Journal, 20, 8, 1999, pp. 711-727.

Dunning, J. H., Multinational Enterprise and the Global Economy, Reading, Massachusetts: Addi- son- Wesley 1993.

Eisenmann, T. R., The Effects of CEO Equity Ownership and Firm Diversification on Risk Taking, Strategic Management Journal, 23, 6, 2002, pp. 513-534.

Ellstrand, A. E./Tihanyi, L./Johnson, J. L., Board Structure and International Political Risk, Acad- emy of Management Journal, 45, 4, 2002, pp. 769- -777 '.

Feinberg, S. E./Gupta, A. K., Knowledge Spillovers and the Assignment of R&D Responsibilities to Foreign Subsidiaries, Strategic Management Journal, 25, 8/9, 2004, pp. 823-845.

Finkelstein, S./Boyd, B. K., How Much Does the CEO Matter? The Role of Managerial Discre- tion in the Setting of CEO Compensation, Academy of Management Journal, 41, 2, 1998, pp. 179-199.

Finkelstein, S./D'Aveni, R. Α., CEO Duality as a Double-Edged Sword: How Boards of Directors Balance Entrenchment Avoidance and Unity of Command, Academy of Management Journal, 37,5, 1994, pp. 1079-1108.

Franko, L. G., Global Corporate Competition: Who's Winning, Who's Losing, and the R&D Fac- tors as One Reason Why, Strategic Management Journal, 10, 5, 1989, pp. 449-474.

Furman, J. L./Porter, M. E./Stern S., The Determinants of National Innovative Capacity, Research Policy, 31,6, 2002, pp. 899-933.

Geringer, J. M./Beamish, P. W./daCosta, R. C, Diversification Strategy and Internationaliza- tion: Implications for MNE Performance, Strategic Management Journal, 10, 1, 1989, pp. 109-119.

Gomes, L./Ramaswamy, K., An Empirical Examination of the Form of the Relationship between Multinationality and Performance, Journal of International Business Studies, 30, 1, 1999, pp. 173-183.

Gomez-Mejia, L. R./Tosi, H./Hinkin, T., Managerial Control, Performance, and Executive Com- pensation, Academy of Management Journal, 30, 1, 1987, pp. 51-70.

Guay, W. R., The Sensitivity of CEO Wealth to Equity Risk: An Analysis of the Magnitude and Determinants, Journal of Financial Economics, 53, 1, 1999, pp. 43-71.

Hambrick, D. C./Abrahamson, E., Assessing Managerial Discretion across Industries: A Multi- method Approach, Academy of Management Journal, 38, 5, 1995, pp. 1427-1441.

Harris, R. S./Ravenscraft, D., The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market, Journal of Finance, 46, 3, 1991, pp. 826-844.

Hitt, M. A./Hoskisson, R. E./Kim, H., International Diversification: Effects on Innovation and Firm Performance in Product-Diversified Firms, Academy of Management Journal, 40, 4, 1997, pp. 767-798.

Hitt, M. A. et al., International Diversification: A Review of Recent Research on Antecedents, Mod- erators, and Outcomes, Journal of Management, 32, 6, 2006, pp. 831-867.




Hoskisson, R. Ε. et al., Conflicting Voices: The Effects of Ownership Heterogeneity and Inter- nal Governance on Corporate Strategy, Academy of Management Journal, 45, 4, 2002, pp. 697-716.

Jensen, M. C./Murphy, K. J., Performance Pay and Top Management Incentives, Journal of Politi- cal Economy, 98, 2, 1990, pp. 225-264.

Kahn, L. M./Sherer, P. D., Contingent Pay and Managerial Performance, Industrial and Labor Relations Review, 43, 3, 1990, pp. 107S-120S.

Kerlinger, F. N./Pedhazur, E. J., Multiple Regression in Behavioral Research, New York: Holt, Rinehart, Winston 1973.

Kobrin, S. J., An Empirical Analysis of the Determinants of Global Integration, Strategic Manage- ment Journal, 12, SI, 1991, pp. 17-31.

Kogut, B./Chang, S. J., Technological Capabilities and Japanese Foreign Direct Investment in the United States, Review of Economics and Statistics, 73, 3, 1991, pp. 401-^13.

Kogut, B./Walker, G./Anand, J., Agency and Institutions: National Divergences in Diversification Behavior, Organization Science, 13, 2, 2002, pp. 162-178.

Kotabe, M., The Relationship between Offshore Sourcing and Innovativeness of U.S. Multinational Firms: An Empirical Investigation, Journal of International Business Studies, 21,4, 1990, pp. 623-638.

Leonard, J. S., Executive Pay and Firm Performance, Industrial and Labor Relations Review, 43, 3, 1990, pp. 13S-29S.

Lubatkin, M./Chatterjee, S., Extending Modern Portfolio Theory into the Domain of Corporate Diversification: Does It Apply? ', Academy of Management Journal, 37, 1, 1994, pp. 109-136.

Luo, Y./Peng, M. W., Learning to Compete in a Transition Economy: Experience, Environment, and Performance, Journal of International Business Studies, 30, 2, 1999, pp. 269-296.

Jin, L., CEO Compensation, Diversification, and Incentives, Journal of Financial Economics, 66, 1,2002, pp. 29-63.

Lu, J. W./Beamish, P. W., International Diversification and Firm Performance: The S-Curve Hypoth- esis, Academy of Management Journal, 47, 4, 2004, pp. 598-608.

Miller, J. S./Wiseman, R. M./Gomez-Mejia, L. R., The Fit between CEO Compensation Design and Firm Risk, Academv of Management Journal, 45, 4, 2002, pp. 745-756.

Mishra, C. S./Gobeli, D. H., Managerial Incentives, Internationalization, and Market Valuation of Multinational Firms, Journal of International Business Studies, 29, 3, 1998, pp. 583-598.

Nachum, L./Zaheer, S., The Persistence of Distance? The Impact of Technology on MNE Motiva- tions for Foreign Investment, Strategic Management Journal, 26, 8, 2005, pp. 747-767.

Rechner, P. L./Dalton, D. R., CEO Duality and Organizational Performance: A Longitudinal Analy- sis, Strategic Management Journal, 12, 2, 1991, pp. 155-160.

Rediker, K. J./Seth, Α., Board of Directors and Substitution Effects of Alternative Governance Mechanisms, Strategic Management Journal, 16, 2, 1995, pp. 85-99.

Roth, K., Managing International Interdependence: CEO Characteristics in a Resource-Based Framework, Academy of Management Journal, 38, 1, 1995, pp. 200-231.

Roth, K./O'Donnell, S., Foreign Subsidiary Compensation Strategy: An Agency Theory Perspec- tive, Academy of Management Journal, 39, 2, 1996, pp. 678-703.

Sambharya, R. B., Foreign Experience of Top Management Teams and International Diversification Strategies of US Multinational Corporations, Strategic Management Journal, 17, 9, 1996, pp. 739-746.

Sanders, W. G., Behavioral Responses of CEOs to Stock Ownership and Stock Option Pay, Acad- emy of Management Journal, 44, 3, 2001, pp. 477-492.

Sanders, W. G./Carpenter, Μ. Α., Internationalization and Firm Governance: The Roles of CEO Compensation, Top Team Composition, and Board Structure, Academy of Management Jour- nal, 41, 2, 1998, pp. 158-178.



Technological Competence and International Diversification 43 1

Sanders, W. G./Carpenter, Μ. Α., Strategic Satisficing? A Behavioral-Agency Theory Perspec- tive on Stock Repurchase Program Announcements, Academy of Management Journal, 46, 2, 2003, pp. 160-178.

Sanna-Randaccio, F./Veugelers, R., Multinational Knowledge Spillovers with Decentralized R&D: A Game-Theoretic Approach, Journal of International Business Studies, 38, 1, 2007, pp. 47-63.

Shapiro, Α., Multinational Financial Management* Boston: Allvn & Bacon 1982. Sullivan, D., Measuring the Degree of Internationalization of a Firm, Journal of International Busi-

ness Studies, 25, 2, 1994, pp. 325-342. Takeuchi, R./Tesluk, P. E./Yun, S. H., An Integrative View of International Experience, Academy of

Management Journal, 48, 1, 2005, pp. 85-100. Tallman, S./Fladmoe-Lindquist, K., Internationalization, Globalization, and Capability-Based

Strategy, California Management Review, 45, 1, 2002, pp. 116-135. Tallman, S./Li, J., Effects of International Diversity and Product Diversity on the Performance of

Multinational Firms. Academv of Management Jo urnal. 39. 1. 1996. dd. 179-196. Tihanyi, L. et al., Composition of the Top Management Team and Firm International Diversifica-

tion, Journal of Management, 26, 6, 2000, pp. 1 157-1 177. Tihanyi, L. et al., Institutional Ownership Differences and International Diversification: The Effects

of Boards of Directors and Technological Opportunity, Academy of Management Journal, 46, 2, 2003, pp. 195-211.

Useem, M., Investor Capitalism: How Money Managers Are Changing The Face of Corporate America, New York: Basic Books 1996.

van Pottelsberghe de la Porterie, B. /Lichtenberg, F., Does Foreign Direct Investment Transfer Tech- nology Across Borders?, Review of Economics and Statistics, 83, 3, 2001, pp. 490-497.

Vernon, R., International Investment and International Trade in the Product Life Cycle, Quarterly Journal of Economics, 80, 2, 1966, pp. 190-207.

Wiseman, R. M./Gomez-Mejia, L. R., A Behavioral Agency Model of Managerial Risk Taking, Academy of Management Review, 23, 1, 1998, pp. 133-153.

Wolf, Β. Μ., Industrial Diversification and Internationalization: Some Empirical Evidence, Journal of Industrial Economics, 26,2, 1977, pp. 177-191.



corporate governance and international business || technological competence and international...

Documents