Institutional investors and international investments in emerging economy firms: A behavioral risk perspective

Abstract

While the extant literature has examined the influence of controlling and non-controlling principals on the internationalization decisions of emerging market firms, heterogeneity among non-controlling principals is largely ignored. The risk characteristics of different groups of owners, shaped by their institutional environments, could contribute to the differences in their preferences for firm internationalization. In this paper, we draw insights from institutional theory and behavioral risk perspective to examine the risk propensities and risk perceptions of various non-controlling principals, such as pressure-resistant (FIIs and mutual funds) and pressuresensitive (banks, insurance companies and lending institutions) institutional investors. Empirical results from a sample of 2364 unique Indian firms during the 2005-2014 time-period show that, after controlling for firm-level resources and capabilities identified in prior literature, the ownership share of different types of institutional investors is associated with firms' international investments differently. While pressure-sensitive institutional investors, such as banks and insurance companies, are not supportive of foreign investments by firms, pressure-resistant institutional investors, such as FIIs and mutual funds, are supportive of this strategic decision. Furthermore, our results show that the family ownership in a firm (measured in terms of family shareholding) further lowers the preference of pressure sensitive institutional investors for internationalization, whereas family ownership positively moderates the pressure resistant investors towards internationalization.

Exploring the role of family ownership in internationalization: empirical investigation of Indian firms

“…They are also reluctant to introduce ideas beyond existing patterns and their unfamiliarity with the international environment. Our results are consistent with Ray et al (2018) and Panicker et al (2019), who also find negative association between outward FDI and family ownership of Indian firms. We find that LIs have a positive impact on internationalization and is consistent with several studies by Muniandy et al , 2016 and Ferreira and Matos, 2008.…”

Riding the waves of family firm internationalization: A systematic literature review, integrative framework, and research agenda

“…At the macro-context level, our evidence points to the use of institutional theory (e.g. Bhaumik, Driffield, & Pal, 2010 ; Ilhan-Nas et al, 2018 ; Panicker et al, 2019 ) to investigate how family firm internationalization decisions are affected by home and host country institutional aspects.…”

“…IJVs) + Focus on the entire global value chain and post-entry decisions (e.g. divestiture, re-shoring) Scholar target audience Family Business Family Business + International Business + General management and other social sciences Illustrative references Tsang, 2002 ; Zahra, 2003 ; Fernandez & Nieto, 2005 , 2006 ; Graves & Thomas, 2008 Gómez-Mejía et al, 2010 ; Banalieva & Eddleston, 2011 ; Arregle et al, 2012 ; Sciascia et al, 2012 Boellis et al, 2016 ; Arregle et al, 2017 ; Fang et al, 2018 ; Sestu & Majocchi, 2018 ; Panicker, S., & Upadhyayula, 2019 Reuber, 2016 ; Kano & Verbeke, 2018 ; Arregle et al, 2019 ; Hennart et al, 2019 ; Kim et al, 2019 ; Xu et al, 2019 Note : + refers to additional features compared to the previous wave. …”

Institutional Ownership and Corporate Social Performance in Emerging Economies Multinationals: Evidence from India

“…In the Indian context, FIIs have followed a common practice of investing through institutional activism. They generally invest in Indian firms by the promotional intervention of SEBI and the legal security system (Panicker et al, 2019). The active monitoring by foreign investors allows them to invest in long-term projects (Bena et al, 2017).…”