The effect of CEO incentives on deviations from institutional norms in foreign market expansion decisions: Behavioral agency and cross‐border acquisitions

Abstract

CEO incentives have been the subject of great interest for human resource scholars. We explore the institutional context within which the CEO makes sense of their incentives. Our theory suggests that CEO equity incentives interact with institutional norms to influence foreign market entry choices. Specifically, we argue that CEOs will weigh the risk bearing created by equity incentives, along with the consequences of legitimacy loss, when deciding whether to deviate from institutional norms when internationalizing. In doing so, we advance human resource literature by demonstrating that CEO responses to incentives are influenced by institutional norms and that CEOs' decisions to deviate from institutional norms are shaped by their incentives. We find support for our framework in the analysis of the stake taken by acquirers in 4,184 cross‐border acquisitions.

International experience and imitation of location choices: The role of experience interpretation and assessment and its board‐level microfoundations

“…Indeed, audiences may scrutinize and judge a firm's internationalization actions to determine their legitimacy (e.g., Ang, Benischke, & Doh, 2015; Kostova & Zaheer, 1999). Consistent with the theoretical arguments advanced (and empirically supported) by Benischke, Martin, Gomez‐Mejia, and Ljubownikow (2020), our results suggest the existence of a trade‐off between legitimacy risk—that is, “the potential harm to the organization resulting from lack of compliance with institutional norms or expectations” (Benischke et al, 2020, p. 478)—and business risk—that is, “the likelihood of performance failures, or lower than expected returns when the firm makes particular strategic choices under bounded rationality” (Benischke et al, 2020, p. 478). International experience accentuates such a trade‐off, making it more visible and salient.…”

“…Our microfoundations perspective allows us to point out the contribution of the board to a firm's information processing and hence to shed new light on the role of the board in internationalization and mimetic processes. While previous research has shown that these board-level factors have a direct effect on firms' global strategies (e.g., Barroso, Villegas, & Pérez-Calero, 2011;Benischke et al, 2020), in our study we show their moderating effect through their interaction with international experience. Relatedly, the extant literature shows the influence of the board on the imitation of peers' strategic actions (e.g., Ang et al, 2018;Haunschild, 1993), including their location choices (e.g., Connelly et al, 2011).…”

“…However, the extant literature has also examined other board‐level factors as potential drivers of firm internationalization (e.g., Barroso et al, 2011). Moreover, previous research has demonstrated the influence on the imitation of internationalization decisions of characteristics of other decision‐makers, such as the CEO and the top‐management team (e.g., Benischke et al, 2020; Gupta & Misangyi, 2018). Therefore, the examination of whether and how other corporate governance mechanisms (e.g., board international experience, CEO duality, ownership concentration, and institutional ownership) and CEO and top‐management team characteristics interact with firms' international experience in determining imitation of location choices would complement our study.…”

The Impact of Chair–Team Sociodemographic Dissimilarity on the Relation Between Chair Power and Entrepreneurial Ventures’ R&D Intensity: Evidence From China

“…When a problem is framed as “negative,” decision-makers often take more aggressive risk behaviors to minimize the loss of their wealth. Behavioral agency model has been extensively used to explain decision-makers’ risk preferences and associated organizational performance since it is proposed (e.g., Martin et al, 2015 ; Poletti-Hughes and Briano-Turrent, 2019 ; Benischke et al, 2020 ). But this model used into the innovation research is still lacking.…”

“…In this regard, it not only makes up the deficiency of classic agency model, but also expands the research of prospect theory. Since its inception, the behavioral agency model has been widely used to explain the relationship between executive risk preferences and organizational outcomes (e.g., Martin et al, 2015 ; Poletti-Hughes and Briano-Turrent, 2019 ; Benischke et al, 2020 ). But this model used into the innovation research is still lacking.…”