Executive migration and international mergers and acquisitions

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Executive migration and international mergers and acquisitions Yu-Kai (Mike) Wang Department of Business Administration, Soochow University, 56, Kueiyang St., Sec. 1, Taipei, Taiwan, ROC

A R T I C LE I N FO

A B S T R A C T

Keywords: Executive migration International acquisition Learning-by-hiring Microfoundations

This study applies the microfoundations approach to examine the impact of migrating executives on firms’ selection of host country in their international acquisition decisions. Viewing executive migration as a conduit for inter-organizational learning, this study offers the first empirical findings that a migrating executive’s interorganizational learning associated with two specific types of international acquisition experience, i.e., general and country-specific, accumulated at a prior affiliated firm positively impacts host country selection in the executive’s current affiliated firm’s acquisition decisions. The findings further suggest that the migrating executive’s prior country-specific international acquisition experience has a greater influence compared with the migrating executive’s prior general international acquisition experience. Last, the findings show that industry similarity between a migrating executive’s prior and current affiliated firms enhances the effect of the migrating executive’s specific host country acquisition experience. In sum, this study contributes by introducing migrating executives as a new learning conduit in international acquisitions.

1. Introduction Determining which foreign country a firm should enter and operate in is a critical and fundamental question in the field of international business (Dunning & Lundan, 2008; Johanson & Vahlne, 1977; Tallman, 1992). Traditional international business theories offer rationales to answer this question. For instance, product life-cycle theory takes a high-level view by focusing on country-related factors, proposing that developing countries are potential target markets for multinational enterprises (MNEs) (Vernon, 1966). Internationalization process theory further looks at the country-level factor of psychic distance, indicating that firms should enter foreign markets that are located at shorter psychic distances from themselves in order to reduce information-processing challenges (Johanson & Vahlne, 1977, 1990). Industrial organization theory related to MNEs, on the other hand, focuses on industrylevel factors, implicitly assuming that the local market structures determine which foreign countries a firm should enter (Hymer, 1976). Internalization theory takes a different angle entirely, arguing that risk factors determine the location of foreign entry (Buckley & Casson, 1976). More recent research has shown that the choice of foreign markets is determined by institutional environments (e.g., Kostova, 1999; Perkins, 2014). Although these theories provide various rationales for the phenomenon of international market entry, they do not explore the impact of top executives, who, as individuals, are microfoundations of strategic actions (Teece, 2007). Top executives have a significant impact on the strategies of a firm,

playing a critical role in their firm’s strategic decisions (Child, 1972; Hambrick & Mason, 1984; Teece, 2007). In particular, migrating executives, or executive migration, which refers to the movement of top executives between organizations, have been documented as being a major driving force of strategic actions (e.g., Boeker, 1997; Kraatz & Moore, 2002). Within the concept of microfoundations, which focuses on the influence of individual actions and their interactions on organizational outcomes (e.g., Felin, Foss, & Ployhart, 2015; Teece, 2007), prior research has indicated that learning effects occur through personnel migration, i.e., personnel movements between organizations, which can affect various organizational outcomes. For instance, personnel migration affects strategic change (Boeker, 1997), technological repositioning (Tzabbar, 2009), institutional change (Kraatz & Moore, 2002), diffusion/retention of organizational practices (Dokko & Gaba, 2012; Madsen, Mosakowski, & Zaheer, 2003), diffusion of innovation and benchmarking (Still & Strang, 2009), and establishment/dissolution of exchange relationships (Broschak, 2004; Dokko & Rosenkopf, 2010). These studies have mainly viewed personnel migration as a channel for an organization to receive human and social capital from another organization. Among the personnel migration studies, executive migration has been frequently explored (e.g., Boeker, 1997; Still & Strang, 2009). However, this stream of research has been largely based in domestic contexts; the impact of executive migration has not yet been investigated within the context of international business. This study, consequently, investigates the effects of executive migration on international market entry. Specifically, this study explores a

E-mail address: [email protected]. https://doi.org/10.1016/j.ibusrev.2018.10.001 Received 23 March 2015; Received in revised form 3 August 2018; Accepted 2 October 2018 0969-5931/ © 2018 Elsevier Ltd. All rights reserved.

Please cite this article as: Wang, Y.-K., International Business Review, https://doi.org/10.1016/j.ibusrev.2018.10.001

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country’s likelihood of being selected by a firm as host country in an international acquisition. ‘International acquisition’ refers to an acquisition that is undertaken in a country that is foreign to the acquiring firm. Prior research has documented that past organizational experience and knowledge affects a firm’s international acquisition behavior (e.g., Barkema & Schijven, 2008; Collins, Holcomb, Certo, Hitt, & Lester, 2009; Perkins, 2014). Based on the concept of microfoundations, a firm can receive knowledge and experience through migrating executives, as such executives have learned and accumulated experience and knowledge in prior affiliated firms, and carry this with them when they become employed by a new firm. Here, they can apply this experience and knowledge to the strategic decisions they make. By integrating the concept of microfoundations (e.g., Felin et al., 2015; Teece, 2007), upper echelons theory (Hambrick & Mason, 1984), and literature on learning-by-hiring (e.g., Boeker, 1997; Kraatz & Moore, 2002; Tzabbar, 2009), this study expects that migrating executives’ experience and knowledge learned and accumulated during their prior tenures with other firms can be applied to and impact the international acquisitions of their current affiliated firms. This study specifically explores how two types of inter-organizational learning associated with executive migration, i.e., a migrating executives’ general and country-specific prior international acquisition experience, impact host country selection in the current affiliated firm’s acquisition decisions. Furthermore, this study examines whether these two types of inter-organizational learning have different influences on a firm’s choice of host country in cross-border acquisition decisions, and how industry similarity between the migrating executives’ prior and current affiliated firms moderates the above relationships. This study provides a number of contributions to the literature. First, it contributes to the international mergers and acquisitions literature by including executive migration as a learning conduit that firms make use of when making host country acquisition decisions. Our results show that inter-organizational learning associated with executive migration, including both the executive’s general and countryspecific prior international acquisition experience, can impact a firm’s host country acquisition decisions. Second, this study enriches the microfoundations research in the field of international business. Microfoundations have drawn great attention in other fields, such as strategic management and organization (Felin et al., 2015). Recently, international business scholars have also urged us to study the phenomena of international business based on the microfoundations approach (Maitland & Sammartino, 2015; Verbeke & Calma, 2017). Our findings contribute to international business research by demonstrating that the international acquisition experiences migrating executives gain during their tenures at prior affiliated firms impact their current affiliated firms’ selection of host country in their acquisition decisions. Finally, this study enhances our knowledge on inter-organizational learning effects and their boundary conditions. In addition to executive migration impacting other organizational outcomes, it also impacts a firm’s host country selection decisions when undertaking international acquisitions, as shown in this study. Our findings show that the two types of inter-organizational learning included in this study have different influences on this. The study furthermore highlights the boundary condition of international acquisition learning through executive migration by demonstrating that industry similarity plays a moderating role, where whether a migrating CEO is employed from within the same industry as the current firm or from a distant industry impacts a firm’s selection of host country when undertaking an international acquisition.

be derived from the environments of the host country, which may differ greatly from that of the firm’s home country. For instance, local customers in a foreign country may have different tastes, and therefore the firm should adjust its products and services in order to tailor them to local demands. A firm may also adopt a new strategy because the firm may face different market structures and forces in the new market (Porter, 1985). Other factors a firm must assess when it acquires a foreign firm are the constraints of the host country’s political environment as well as its unique societal value system (Boddewyn, 1988; Hofstede, 1984; Rothaermel et al., 2006). When undertaking the decisions surrounding an international acquisition, firms must consider a series of factors during the various stages of the international acquisition process (Finkelstein & Haleblian, 2002; Jemison & Sitkin, 1986). These factors include, for example, identifying potential foreign targets before an acquisition, negotiating deal terms with foreign targets during an acquisition, and integrating foreign targets into the acquiring firms after an acquisition. Sufficient knowledge of these factors reduces uncertainty and enhances the progress of international acquisition decisions (Barkema & Schijven, 2008; Collins et al., 2009). Consequently, we expect that firms need to have sufficient relative international acquisition knowledge in order to adequately assess the strategic decision of host country selection when undertaking an international acquisition. 2.1. Theoretical background Since decisions firms make related to international acquisitions are critically strategic in nature, they require firms to develop dynamic capabilities that allow them not only to sense and seize international acquisition opportunities but also create and maintain competitive advantages through the international acquisitions (Teece, 2007). Overall, a firm continually learns and absorbs required new information and knowledge through various channels. Since other firms may have experienced the same or a similar situation that a focal firm is facing, firms may prefer to learn from other firms (Huber, 1991; Levitt & March, 1988). A firm may learn from other firms through interactions and observation. However, not only an unwillingness to share knowledge but also a lack of communication channels between firms may hamper the occurrence or effect of inter-organizational learning (Abrahamson & Rosenkopf, 1993). Consequently, executive migration is a channel through which the specific knowledge set accumulated by a top executive in a firm can be transferred to another firm. This is known as learning-by-hiring (e.g., Boeker, 1997; Kraatz & Moore, 2002; Tzabbar, 2009). Top executives play a key role as they are responsible for making the decisions related to firm strategy, developing organizational routines (Cyert & March, 1963; Hambrick & Mason, 1984), as well as reconfiguring strategic resources and assets in order to gain competitive advantages (Augier & Teece, 2009; Felin, Foss, Heimeriks, & Madsen, 2012; Teece, 2007). Consequently, prior research has proposed that top executives are key microfoundations of organizational capabilities (e.g., Felin et al., 2015; Teece, 2007). In line with this, upper echelons rationales (Hambrick & Mason, 1984) state that a firm’s strategic choices are in part shaped by its top executives’ knowledge of external and internal environments as well as alternatives and their consequences. Upper echelons literature has further demonstrated that various types of experience gained by top executives, including prior acquisition experience, international experience, and experience in a particular industry, impact strategic outcomes (e.g., Kor, 2003; Le & Kroll, 2017; Nadolska & Barkema, 2014). This is because top executives’ knowledge is mainly based on experiential learning, which is generated through first-hand experience (e.g., Levitt & March, 1988). That is to say, top executives accumulate knowledge through the process of learning from their experiences during their firm tenures (Boeker, 1997), where they develop information processing routines, distinctive skills, viewpoints, and insights. Executive migration thus plays an

2. Theoretical foundation and hypotheses Before entering into a new international market or making an international acquisition, a firm is required to evaluate not only the benefits but also the risks associated with this decision (Brouthers & Hennart, 2007; Rothaermel, Kotha, & Steensma, 2006). These risks may 2

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before an acquisition, negotiate with target firms during an acquisition, and manage integration activities after an acquisition (Finkelstein & Haleblian, 2002; Jemison & Sitkin, 1986). This study thus proposes that migrating executives who have accumulated general international acquisition experience, i.e., irrespective of host country, during their tenures with prior affiliated firms will bring this experience and knowledge with them to their positions in their current affiliated firms. These executives may subsequently increase a country’s likelihood of being selected by their current affiliated firms as the host country when undertaking an international acquisition. Consequently, this study expects that:

important role in inter-organizational learning, as top executives can bring this accumulated knowledge as well as shaped cognition with them to their subsequent firms. In short, the attributes or capabilities of top executives form the microfoundations of strategic actions (Felin et al., 2015). For instance, prior studies on the diffusion of innovations have documented that executive migration can be a channel through which practices are spread among firms (e.g., Harrison & Carroll, 1991). Accordingly, the importance of learning-by-hiring has been emphasized in prior studies (e.g., Boeker, 1997; Kraatz & Moore, 2002; Tzabbar, 2009). Another example is Rosenbloom (2000), who proposed that CEOs with dynamic capabilities facilitate strategic change, and demonstrated how a new CEO with a different mindset rather than a long-tenured CEO with an inertial mindset can trigger a firm to undertake strategic change. In the context of international markets, Herrmann and Datta (2006) indicated that the entry mode choice for foreign direct investments is not only determined by the CEO’s firm experience and functional experience, but also his or her international experience. Additionally, grounded in learning from experience, Nadolska and Barkema (2014) indicated that top executives’ prior acquisition experience determines subsequent acquisition frequency and success. Based on the above, our article applies a micro-level lens to extend this line of research by investigating how inter-organizational learning through executive migration affects a firm’s selection of host country when undertaking an international acquisition. This study further includes an examination of the boundary condition of industry similarity between the migrating executives’ prior and current affiliated firms.

H1. Inter-organizational learning through a migrating executive’s general international acquisition experience is positively associated with a country’s likelihood of being selected by the firm as the host country when undertaking an international acquisition. Migrating executives’ international acquisition experience, irrespective of which foreign country the acquisitions are undertaken in, will lead to the executives’ accumulation of broad and generalized knowledge regarding acquisitions that involve targeted firms located in foreign countries. However, conducting an international acquisition requires sufficient knowledge about the particular host country selected. One of the main reasons that a firm may be deterred from conducting an acquisition in a particular host country is a lack of sufficient knowledge by which to evaluate the risks associated with undertaking an international acquisition in that country. Thus, migrating executives who possess country-specific acquisition experience from the host country in which their firms wish to undertake an acquisition may be able to more accurately and effectively evaluate acquisition-related factors. Extant research shows that previously accumulated experiential learning can be better exercised in an environment similar to that in which it was accumulated (e.g., Boeker, 1997). Country-specific experiential learning thus plays a critical role in international expansion, as experience accumulated through prior investments in a foreign country may reduce the uncertainty of future investments in that same country (Delios & Henisz, 2003; Johanson & Vahlne, 1977). That is to say, migrating executives who have accumulated country-specific acquisition experience during their tenures with prior affiliated firms can assist their current affiliated firms to better understand, evaluate, and manage an acquisition and the risks associated with the foreign environments in that particular country. Thus, this study proposes:

2.2. The effect of executive migration on host country selection decision The critical role of executive knowledge in strategic decisions has been well documented (e.g., Carpenter & Fredrickson, 2001; Nadolska & Barkema, 2014). Prior research has also demonstrated the impact of executive knowledge on organizational outcomes (e.g., Henderson, Miller, & Hambrick, 2006; Kor, 2003; Miller, 1991). Although top executives can accumulate knowledge through other channels, experiential learning continues to be the most critical source through which they develop their knowledge base (Kor, 2003; Miller, 1991). This is because the knowledge of top executives largely comes from the process of learning-by-doing (Mintzberg, 1973). Top executives’ evaluations of various alternatives are not without criterions or reference points. Past experience that an executive has personally engaged in is frequently considered to be a reference point and consequently impacts not only the decision-making process but also the end decisions (March & Simon, 1958). As mentioned, top executives gain information, experience, and knowledge not only in their current executive positions but also in their prior executive positions. This past or historical experience and knowledge can build a top executive’s ability to better match internal capabilities with external environments and thus enhance a firm’s ability to make correct strategic choices (Penrose, 1959). Following the arguments of prior research (e.g., Baty, Evan, & Rothermel, 1971; Boeker, 1997), this study thus extends the concept of microfoundations and the theory of experiential learning, by arguing that top executives carry with them the information, experience, and knowledge gained during their tenures with prior affiliated firms, i.e., their experiential learning, into their current affiliated firms. Consequently, migrating executives serve as a conduit for inter-organizational learning, i.e., inter-organizational learning occurs through a learningby-hiring effect (e.g., Boeker, 1997; Kraatz & Moore, 2002; Tzabbar, 2009). Compared to domestic acquisitions, international acquisitions are more complex and require greater learning (Vermeulen & Barkema, 2001). International acquisitions, irrespective of which host country they are undertaken in, provide migrating executives with better knowledge and capabilities to select target firms in foreign countries

H2. Inter-organizational learning through a migrating executive’s specific host country acquisition experience is positively associated with the country’s likelihood of being selected by the firm as the host country when undertaking an international acquisition. Each foreign country has its unique environment. Whereas interorganizational learning associated with migrating executives’ overall international acquisition experience and knowledge offers generalized experience and knowledge, inter-organizational learning associated with migrating executives’ acquisition experience from a specific host country provides knowledge that is tailored to that particular host country. Because inter-organizational learning related to acquisition experience from a particular host country provides knowledge specific to that context, it assists migrating executives to generate deeper insights for their current affiliated firms regarding that particular host country. That is to say, the migrating executives’ acquisition experience from that particular host country is more readily transferable and applicable to the current acquisition compared with migrating executives’ general international acquisition experience. Thus, such country-specific acquisition experience not only assists firms to better identify and negotiate with targets but also helps them better manage integration after the acquisition in that particular host country setting. This may lead firms to view themselves as more ready to undertake an acquisition in that particular host country. 3

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this study. The sample was drawn from the U.S. firms listed in the Standard and Poor’s Execucomp database, which mainly includes S&P index member firms. We set executive migration as a CEO who held an outside executive position before he or she took on the CEO position with the current firm. We limited the definition of top executives to CEOs, as the CEO position is the highest position within a firm, and CEO successors have been shown to impact strategic decisions (e.g., Kesner & Sebora, 1994; Lin & Liu, 2012). In order to track CEO migration, we first identified CEO succession events for our sample firms from year 2000 to 2011. We then used the companies’ annual proxy statements as well as CEO information available on the Execucomp database to distinguish migrating CEOs, or outside CEOs, from inside CEOs. We found 571 migrating CEOs during this period. To create firm–host country combinations, we integrated our sample firms that had migrating CEOs with Hofstede (2001) list of 76 countries, excluding the U.S. We limited host countries to these 76 countries in order to include cultural distance as a control variable. After excluding observations with missing data for our variables, our final sample included 19,811 firm–host country combinations within 222 firms. Data were collected from the following sources: (a) acquisition data including both the international acquisitions related to the migrating CEOs’ prior and current affiliated firms’ acquisitions were collected from the Securities Data Corporation’s (SDC) Platinum database; (b) CEO data were obtained from the Execucomp database, firm proxy statements, firms’ 10-K filings, and news reports; (c) firm-level financial data and firms’ industry affiliations were gathered from the Compustat database; and (d) country-level data were drawn from two sources: data for national culture were collected from Hofstede’s website, while data on host country economic conditions were acquired from the World Bank’s World Development Indicators database.

Based on the above, this study thus expects that, compared to interorganizational learning associated with migrating executives’ general international acquisition experience, inter-organizational learning associated with migrating executives’ acquisition experience from a specific host country generates a greater influence on the likelihood of that particular country being selected as the host country by the firm when undertaking an international acquisition. This study thus argues: H3. Inter-organizational learning through a migrating executive’s acquisition experience from a specific host country is a stronger predictor of the country being selected by the firm as the host country when undertaking an international acquisition than inter-organizational learning through a migrating executive’s general international acquisition experience.

2.3. The boundary condition of industry similarity This study further argues that the industry similarity between a migrating executive’s prior and current affiliated firms may impact the effects of inter-organizational learning through the migrating executive’s acquisition experience accumulated in the prior affiliated firm. A migrating executive may be previously affiliated with another firm in either the same industry or a distant industry. Prior research has documented that the degree of industry similarity determines the degree of transferability of executive knowledge (Harris & Helfat, 1997; Weng & Lin, 2014). Compared to a migrating executive affiliated with a prior firm in a distant industry, a migrating executive affiliated with a prior firm in the same industry is equipped with better industry-specific skills and knowledge (Castanias & Helfat, 1991, 2001). That is to say, same-industry executives have better knowledge about the industry situation of their current affiliated firms, including knowledge regarding various stakeholders such as buyers, suppliers, and competitors as well as the opportunities and threats of the industry (Kor & Sundaramurthy, 2009). Consequently, such executives will have better knowledge not only about acquisition opportunities but also about potential acquisition targets, and will be able to more easily apply international and specific-country acquisition knowledge that they have accumulated in their prior firms. We can thus expect that inter-organizational learning associated with executive migration will be greater when the migrating executive’s prior and current affiliated firms are in the same industry. On the other hand, when migrating executives come from a distant industry, they may need to first familiarize themselves with the current industry’s conditions, including acquisition opportunities and potential acquisition targets. It will therefore be harder for them to utilize their general and country-specific international acquisition experience accumulated in their prior affiliated firms. Based on the above, this study thus proposes:

3.2. Dependent variable Host country acquisition We treated Host country acquisition as a dichotomous variable where a value of 1 was assigned when the focal firm selected the firm–host country combination's specific country, and a value of 0 was offered otherwise. Because an international acquisition may take a relatively long time to complete, we measured this variable in the three-year period (t + 1 to t + 3) after a migrating CEO took his or her position with the focal firm. 3.3. Independent and moderating variables Inter-organizational learning through a migrating CEO’s general international acquisition experience CEO migration occurs when a CEO successor is recruited from another firm. The Inter-organizational learning through a migrating CEO’s general international acquisition experience variable was measured as the total number of international acquisitions made by the migrating CEO’s prior affiliated firm during the three-year period prior to the CEO’s migration to the sample firm. A three-year period (t-1 to t-3) was selected following Boeker (1997) contention that more current experience is the most influential, thus composing a key portion of the knowledge base of migrating executives. Inter-organizational learning through a migrating CEO’s specific host country acquisition experience This variable was measured as the number of country-specific acquisitions made by the migrating CEO’s prior affiliated firm during the three-year period (t-1 to t-3) prior to the CEO’s migration to the sample firm, i.e., the number of acquisitions where the prior affiliated firm selected the firm–host country combination's specific country. Industry similarity This variable was adopted as a moderator in this study. Similar to prior research (Weng & Lin, 2014), the variable was constructed as a dichotomous variable to distinguish between migrating CEOs employed

H4a. The positive association between inter-organizational learning through a migrating executive’s general international acquisition experience and a country’s likelihood of being selected by the firm as the host country when undertaking an international acquisition is larger when the migrating executive is from another firm in the same industry rather than from a different industry. H4b. The positive association between inter-organizational learning through a migrating executive’s specific host country acquisition experience and a country’s likelihood of being selected by the firm as the host country when undertaking an international acquisition is larger when the migrating executive is from another firm in the same industry rather than from a different industry.

3. Methods 3.1. Sample and data sources Large and publicly traded U.S. firms constituted the population for 4

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16

Note. 1. N = 19,811; 2. Correlations with year dummy variables are not reported due to space constraints; 3. Correlations greater than 0.02 in absolute value are significant at the p < 0.05 level.

1.00 0.16 −0.06 0.03 0.113 0.009

0.05

0.01

−0.01

0.05

0.01

−0.01

0.01

0.03

−0.01

0.04

0.05

−0.02

1.00 1.00 0.22 0.06 −0.23 0.11 0.01 −0.18 −0.02 −0.03 0.03 0.00 0.12 0.052 6.217 1.179 0.458 1.520 17.261 9.343 1.088 0.067 0.438 8.570 1.917 4.555 1.431 2.344 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Host country acquisition CEO age CEO educational level CEO duality Firm size Firm performance R&D ratio Prior international acquisitions Prior specific host country acquisitions Industry similarity Host country market size Host country GDP per capita Host country GDP growth Cultural distance Inter-organizational learning through a migrating CEO’s general international acquisition experience Inter-organizational learning through a migrating CEO’s specific host country acquisition experience

0.003 52.730 4.506 0.300 14.174 −0.263 6.780 0.563 0.004 0.259 4.494 1.664 3.961 2.733 1.254

1.00 0.00 0.00 0.02 0.03 0.00 −0.01 0.06 0.32 −0.01 0.05 0.02 −0.01 −0.04 0.02

1.00 −0.09 0.16 0.10 0.01 −0.14 −0.03 0.00 −0.07 0.01 0.02 0.00 0.00 0.07

1.00 0.02 −0.05 0.01 0.10 0.04 0.00 −0.08 0.00 0.00 −0.01 0.00 −0.08

1.00 0.20 −0.20 0.22 0.03 0.06 0.00 0.00 0.01 0.00 0.22

1.00 −0.30 0.10 0.01 0.03 0.01 0.00 0.04 0.00 0.08

1.00 −0.11 −0.01 0.21 0.00 0.00 −0.01 0.00 −0.05

1.00 0.10 −0.11 −0.01 0.00 0.04 0.00 0.10

1.00 −0.01 0.06 0.04 −0.01 −0.05 0.01

1.00 0.00 0.01 0.00 0.00 −0.08

1.00 0.26 −0.08 −0.22 0.00

1.00 −0.24 −0.46 0.00

1.00 0.14 0.01

1.00 0.00

15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 S.D. Mean

Table 1 Descriptive Statistics and Correlations.

from the same industry and those from a distant industry. This study used three-digit SIC codes to define industry boundaries. Industry similarity was given the value of 1 when a migrating CEO’s prior affiliated firm had the same three-digit SIC code as the sample firm. Otherwise, the value of 0 was assigned. 3.4. Control variables To limit alternative explanations, we included migrating CEO-level, firm-level, and host country-level control variables, as well as year dummies. At the migrating CEO-level, this study controlled for CEO age, CEO education level, and CEO duality. CEO age was controlled for because the age of a CEO may reflect his or her information-processing ability, the ability to handle complex situations, and risk-taking preference (Hambrick & Mason, 1984). CEO age was measured by counting the years from a CEO’s birth year to the sample-point’s year. We included CEO educational level as a control variable as it is another indicator that represents the information-processing ability of a CEO. Following prior research (Zhang & Rajagopalan, 2010), CEO educational level was measured on a seven-point scale based on the highest degree that a CEO had earned. Last, CEO duality was included as it reflects the power of a CEO to influence a firm’s strategic decisions. CEO duality was coded 1 when the CEO also held the position of the chairperson of the board of directors, and 0 otherwise. This study further included five firm-level control variables: firm size, firm performance, R&D ratio, prior international acquisition experience, and prior specific host country acquisition experience. Firm size was controlled for as prior research (e.g., Hoskisson, Johnson, & Moesel, 1994) has documented that it affects acquisition behavior. We calculated Firm size as the natural logarithm of the total assets of a firm. Firm performance was controlled for by using return on assets (ROA), an accounting-based performance measure. We calculated ROA as the percentage of net income over total assets. R&D ratio was calculated as the percentage of total R&D spending over total sales. Finally, since strategic behaviors tend to be path dependent, i.e., momentum based (Collins et al., 2009), we controlled for a firm’s prior general and country-specific international acquisition experience. Prior international acquisitions and Prior specific host country acquisitions were measured as, respectively, the total number of prior international acquisitions and the number of acquisitions where the prior affiliated firm selected the firm–host country combination's specific country in the three-year period (t-1 to t-3) preceding a CEO’s migration to the sample firm. At the country-level, we included the control variables of host country market size, GDP per capita, GDP growth, as well as cultural distance. The occurrence of international acquisitions is associated with the potential of host markets. We thus controlled for Host country market size by using target host country GDP as a proxy. We further included Host country GDP per capita and Host country GDP growth to control for the economic condition of the host country (Oxley & Yeung, 2001). In addition to controlling for the economic dimension of a host country, this study also used cultural distance to control for the socio-cultural dimension of a host country. The index of Cultural distance is a factor that prior research has frequently employed to reflect the closeness of the national value systems between two countries. Thus, this study used the scores of Hofstede (1984) national culture and then adopted Kogut and Singh (1988) approach to measure national cultural distance, similar to prior research (e.g., Chan & Makino, 2007; Roth & O’Donnell, 1996). Finally, to control for time effects, year dummy variables were included. 3.5. Statistical model The dependent variable of this study is a dichotomous variable that represents a country’s likelihood of being selected by a firm as host country in an international acquisition. A country’s likelihood of being selected by a firm as host country is much lower than its likelihood of 5

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Table 2 Results of Rare-event Logit Regression Analyses for Host Country Acquisition.

CEO age CEO educational level CEO duality Firm size Firm performance R&D ratio Prior international acquisitions Prior specific host country acquisitions Industry similarity Host country market size Host country GDP per capita Host country GDP growth Cultural distance

Model 1

Model 2

Model 3

Model 4

Model 5

Model 6

−0.02 (0.03) −0.10 (0.23) 0.28 (0.36) 0.27*** (0.09) −0.01 (0.01) 0.01 (0.02) 0.22* (0.10) 3.41*** (0.60) −0.49 (0.55) 0.05*** (0.01) −0.08 (0.13) −0.04 † (0.02) −0.44*** (0.14)

−0.02 (0.03) −0.09 (0.23) 0.15 (0.38) 0.20* (0.09) −0.01 (0.01) 0.00 (0.03) 0.23* (0.10) 3.40*** (0.58) −0.38 (0.55) 0.05*** (0.01) −0.08 (0.13) −0.04* (0.02) −0.44*** (0.14) 0.14† (0.07)

−0.02 (0.03) −0.08 (0.23) 0.21 (0.37) 0.24* (0.09) −0.01 (0.01) 0.01 (0.02) 0.23* (0.10) 3.36*** (0.59) −0.51 (0.55) 0.05*** (0.01) −0.09 (0.12) −0.04† (0.02) −0.41*** (0.14)

−0.02 (0.03) −0.08 (0.23) 0.15 (0.37) 0.19* (0.09) −0.01 (0.01) 0.01 (0.03) 0.25* (0.10) 3.39*** (0.59) −0.70 (0.74) 0.05*** (0.01) −0.08 (0.13) −0.04* (0.02) −0.44*** (0.14) 0.12† (0.07)

−0.02 (0.03) −0.07 (0.23) 0.23 (0.37) 0.24* (0.10) −0.01 (0.01) 0.01 (0.02) 0.23* (0.10) 3.30*** (0.60) −0.82 (0.67) 0.05*** (0.01) −0.10 (0.12) −0.04* (0.02) −0.41*** (0.14)

−0.02 (0.03) −0.07 (0.23) 0.15 (0.37) 0.18* (0.09) −0.02 (0.01) 0.01 (0.03) 0.24* (0.10) 3.31*** (0.58) −0.81 (0.78) 0.05*** (0.01) −0.10 (0.12) −0.04* (0.02) −0.41*** (0.14) 0.11 (0.07) 0.92*** (0.35) 0.09 (0.24) 1.91* (0.94) Included −6.20*** (2.31) 805.16 576.23 −259.12

Inter-organizational learning through a migrating CEO’s general international acquisition experience Inter-organizational learning through a migrating CEO’s specific host country acquisition experience Inter-organizational learning through a migrating CEO’s general international acquisition experience * Industry similarity Inter-organizational learning through a migrating CEO’s specific host country acquisition experience * Industry similarity Year dummies Constant BIC AIC Log-likelihood

1.36*** (0.27)

1.19*** (0.37) 0.22 (0.19)

Included −7.25*** (2.32) 781.12 583.77 −266.88

Included −6.40*** (2.31) 786.09 580.85 −264.42

Included −6.97*** (2.35) 783.50 578.25 −263.13

Included −6.38*** (2.30) 794.78 581.64 −263.82

1.96* (0.79) Included −6.83*** (2.33) 788.63 575.49 −260.74

Notes: 1. N = 19,811; 2. Standard errors are in square brackets; 3. All tests are two-tailed; *** p < 0.001; ** p < 0.01; * p < 0.05; † p < 0.10.

selected by a firm as host country in an international acquisition. Additionally, our results indicate that host country GDP growth and cultural distance have a negative and significant effect on a country’s likelihood of being selected by a firm as host country in an international acquisition. In Table 2, the two independent variables, Inter-organizational learning through a migrating CEO’s general international acquisition experience and Inter-organizational learning through a migrating CEO’s specific host country acquisition experience, are entered into Models 2 and 3, respectively. In order to test the moderating effects included in this study, the interaction between Inter-organizational learning through a migrating CEO’s general international acquisition experience and Industry similarity as well as the interaction between Inter-organizational learning through a migrating CEO’s specific host country acquisition experience and Industry similarity are included in Models 4 and 5, respectively. Model 6 presents the full model, which contains all control, independent, and moderating variables. Hypothesis 1 proposed that inter-organizational learning achieved through a migrating CEO’s general international acquisition experience increases a country’s likelihood of being selected by a firm as host country in an international acquisition. This hypothesis receives marginal support by our findings, as the coefficients for Inter-organizational learning through a migrating CEO’s general international acquisition experience are significant in Model 2 (P < 0.10) but not Model 6. Additionally, Hypothesis 2 predicted that inter-organizational learning achieved through a migrating CEO’s specific host country acquisition

not being selected. Considering the above attributes of our dependent variable, this study followed prior research (Zhou & Guillén, 2015) and applied the rare-event logit regression method to test the hypotheses proposed. The major benefit of the rare-event logit regression method is that it corrects for rare events and generates approximately unbiased coefficients (King & Zeng, 2001). This study thus employed the relogitll command in STATA. The cluster option was used in order to account for variance due to intra-firm clustering, where observations belonging to a single firm were treated as a cluster. 4. Empirical results 4.1. Main results Table 1 presents descriptive statistics as well as correlations of our sample, while Table 2 presents the results of the rare-event logit regression analyses of host country selection in international acquisitions. In Table 2, Model 1 is the baseline model, which includes only the control variables, i.e., CEO age, CEO educational level, CEO duality, Firm size, Firm performance, R&D ratio, Prior international acquisitions, Prior specific host country acquisitions, Host country market size, Host country GDP per capita, Host country GDP growth, and Cultural distance, and the moderating variable, Industry similarity. In congruence with our expectations, we found that firm size, prior international acquisitions, prior specific host country acquisitions, and host country market size have a positive and significant impact on a country’s likelihood of being 6

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experience increases a country’s likelihood of being selected by a firm as host country in an international acquisition. The empirical results support this hypothesis, because the coefficients for Inter-organizational learning through a migrating CEO’s specific host country acquisition experience are significant in both Model 3 and Model 6 (P < 0.001). Our Hypothesis 3 predicted that inter-organizational learning through a migrating CEO’s specific host country acquisition experience has a greater effect on a country’s likelihood of being selected by a firm as host country in an international acquisition compared to the effect of inter-organizational learning through a migrating CEO’s general international acquisition experience. Because the rare-event logit models are nonlinear regressions, the coefficients do not reflect the marginal effects. We thus further used the command of margins in STATA and calculated marginal effects for Inter-organizational learning through a migrating CEO’s general international acquisition experience and Inter-organizational learning through a migrating CEO’s specific host country acquisition experience. The marginal effects for these two independent variables are 0.001 and 0.005, respectively. In line with our prediction, inter-organizational learning through a migrating CEO’s specific host country acquisition experience has a much stronger influence on a country’s likelihood of being selected by a firm as host country in an international acquisition compared to the effect of inter-organizational learning through a migrating CEO’s general international acquisition

experience. We further applied a X2 test to examine whether the differences of marginal effects are statistically significant, which they are (X2 = 4.46, P < 0.05), and thus Hypothesis 3 received support. Hypothesis 4a argued that industry similarity strengthens the relationship between inter-organizational learning achieved through a migrating CEO’s general international acquisition experience and a country’s likelihood of being selected by a firm as host country in an international acquisition, whereas Hypothesis 4b asserted that industry similarity strengthens the relationship between inter-organizational learning achieved through a migrating CEO’s specific host country acquisition experience and a country’s likelihood of being selected by a firm as host country in an international acquisition. The results show that the coefficients of interactions between Inter-organizational learning through a migrating CEO’s general international acquisition experience and Industry similarity in Models 4 and 6 are insignificant. Thus, Hypothesis 4a is not supported. However, the coefficients of interactions between Inter-organizational learning through a migrating CEO’s specific host country acquisition experience and Industry similarity, on the other hand, are significant in both Models 5 and 6 (P < 0.05). Consequently, Hypothesis 4b is supported. 4.2. Robustness checks This study further conducted the following robustness check analyses. First, while the current study applied rare-event logistic regressions as the main method of analysis, it additionally conducted logit regressions as well as probit regressions, both of which have been widely used when the dependent variable is dichotomous. Similar to the study’s primary analysis, the clustering option of the STATA statistical software was used here, clustering the data by firm, in order to handle the issue of repeated observations for each firm perhaps leading to observation dependences. The results of these robustness checks are consistent with our original results. Second, as this study explored how CEO migration impacts a country’s likelihood of being selected by a firm as host country in an international acquisition, there is a concern of potential endogeneity. Specifically, inter-organizational learning through a migrating CEO may be impacted by the firm’s prior international acquisitions and prior specific host country acquisitions through the board’s selection of migrating CEO. To address this issue, we applied a technique that has been employed by prior research (Wiersema & Zhang, 2011; Yu, 2008) and created proxies for two types of inter-organizational learning through a migrating CEO that are uncorrelated with the firm’s prior international acquisitions and prior specific host country acquisitions. We first estimated inter-organizational learning through a migrating CEO’s general international acquisition experience and inter-organizational learning through a migrating CEO’s specific host country experience, the two independent variables of this study, based on the firm’s prior international acquisitions, prior specific host country acquisitions, firm size, firm performance, and time effects. We then used the residuals from the above models as proxies for the measures of inter-organizational learning through a migrating CEO to examine our hypotheses. The results of this robustness check are similar to our empirical results. Third, in order to better control for the potential issue of endogeneity, this study further applied the conditional mixed process (CMP) procedure, which is estimated by the maximum likelihood approach (Roodman, 2009).1 The major advantage of the CMP procedure is that the procedure runs regression models simultaneously. The results are shown in Table 3. We first used the standard probit model to estimate Model 1, the baseline model. We further treated Inter-organizational learning through a migrating CEO’s general international acquisition experience as endogenous. We included the migrating CEO’s prior

Table 3 Results of Robustness Tests (Conditional Mixed Process Analyses for Host Country Acquisition).

CEO age CEO educational level CEO duality Firm size Firm performance R&D ratio Prior international acquisitions Prior specific host country acquisitions Industry similarity Host country market size Host country GDP per capita Host country GDP growth Cultural distance Inter-organizational learning through a migrating CEO’s general international acquisition experience Inter-organizational learning through a migrating CEO’s specific host country acquisition experience Inter-organizational learning through a migrating CEO’s general international acquisition experience * Industry similarity Inter-organizational learning through a migrating CEO’s specific host country acquisition experience * Industry similarity Year dummies Constant Log-likelihood

Model 1

Model 2

0.00 (0.01) −0.03 (0.05) 0.05 (0.12) 0.09* (0.04) 0.00 (0.00) 0.00 (0.01) 0.10** (0.04) 1.57*** (0.16) −0.18 (0.15) 0.02*** (0.00) −0.02 (0.04) 0.00 (0.02) −0.18*** (0.05)

−0.01 (0.01) −0.01 (0.05) −0.01 (0.13) 0.06 (0.04) −0.01 † (0.00) 0.00 (0.01) 0.10** (0.04) 1.56*** (0.16) −0.29 (0.21) 0.02*** (0.00) −0.03 (0.04) 0.00 (0.02) −0.18*** (0.05) 0.05* (0.02) 0.37 † (0.20) 0.06 (0.08) 0.74 † (0.43)

Included −3.43*** (0.75) −266.72

Included −3.04*** (0.77) −33533.23

1 The author appreciates the offering of this suggestion by an anonymous reviewer.

Notes: 1. N = 19,811; 2. Standard errors are in square brackets; 3. All tests are two-tailed; *** p < 0.001; ** p < 0.01; * p < 0.05; † p < 0.10. 7

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research has also examined how a firm can select its international location through learning gained from the experiences of its board interlock partners (e.g., Beckman & Haunschild, 2002). This study contributes to this stream of literature by showing that a migrating executive acts as yet another learning conduit. We proposed, specifically, that executive migration is a driver of host country selection in an international acquisition. Our results suggest that inter-organizational learning associated with executive migration, i.e., the executive’s prior general and country-specific international acquisition experience, impacts a firm’s selection of host country during their acquisition decision process. The study also enriches the international business research by bringing in the aspect of microfoundations. Studies within the fields of strategic management and organization have documented the importance of microfoundations (Felin et al., 2015; Foss & Pedersen, 2016; Teece, 2007). This line of research has shown that microfoundations are a key mechanism by which various organizational phenomena can be explained, such as routines (Winter, 2013), innovation (Liu, Wright, Filatotchev, Dai, & Lu, 2010), as well as organizational performance (Aime, Johnson, Ridge, & Hill, 2010). Recently, in the field of international business, scholars have also urged us to explore the microfoundations of international strategy (Maitland & Sammartino, 2015; Verbeke & Calma, 2017). Maitland and Sammartino (2015) have proposed that managerial cognition impacts MNEs’ strategic decisions related to internationalization. Extending employee mobility as a core mechanism of microfoundations in the field of strategic management (Aime et al., 2010; Liu et al., 2010), our findings show that executive migration serves as a conduit for inter-organizational learning and thus impacts the location decisions of international acquisitions. Our study contributes to international business research by demonstrating that migrating executives’ experiences gained during prior tenures at other firms impact their current affiliated firms’ selection of specific host countries in which to undertake acquisitions. Last, this study enhances our understanding of inter-organizational learning effects and their boundary conditions. Extant research has documented that inter-organizational learning occurs through various channels, such as executive migration, board interlocks, and competition (e.g., Still & Strang, 2009). This study focuses on inter-organizational learning via executive migration. Prior research has demonstrated that executive migration affects strategic change (Boeker, 1997), institutional change (Kraatz & Moore, 2002), and diffusion or retention of organizational practices (Dokko & Gaba, 2012; Madsen et al., 2003). Extending this line of research into the field of international business, this study contributes by showing how executive migration impacts a firm’s selection of host country in which to undertake an international acquisition. In particular, this study has categorized inter-organizational learning associated with executive migration into the executive’s prior general and country-specific international acquisition experience. Our findings show that these two types of inter-organizational learning have different influences on a firm’s selection of host country in which to undertake an international acquisition. Additionally, prior research has documented the critical role of contingencies on how a firm’s learning impacts its acquisitions (Barkema & Schijven, 2008). To further this stream of research, this study argues that the contextual factor for the learning effects of executive migration is from the industry level; i.e., the degree of industry similarity between the migrating CEO’s prior and current affiliated firms. This study thus enhances our understanding of learning effects at the industry level and enriches our understanding of microfoundations by integrating the contextual industry-level factor with how learning from executive migration impacts international acquisitions. This study also provides the following practical implications. The findings show that inter-organizational learning through migrating executives’ general international acquisition experience and host country-specific acquisition experience both impact a firm’s selection of host country when undertaking an international acquisition. The results

affiliated firm size (the natural logarithm of total assets), firm performance (ROA), and industry (three-digit SIC codes) as three instruments. Then, we utilized the instrumental variable (probit) command in the CMP procedure to estimate Model 2, the full model. The results of this robustness check are consistent with our empirical results. 5. Discussion and conclusions Integrating the concept of microfoundations (Felin et al., 2015; Teece, 2007), upper echelons theory (Hambrick & Mason, 1984), and literature on learning-by-hiring (e.g., Boeker, 1997; Kraatz & Moore, 2002; Tzabbar, 2009), this study examines the inter-organizational learning effects of executive migration on international acquisitions. Prior research has demonstrated that country- and organization-level factors play a critical role in strategic decisions that are made related to international market entry (e.g., Rothaermel et al., 2006) and international acquisitions (e.g., Shimizu, Hitt, Vaidyanath, & Pisano, 2004). These studies have been grounded in traditional international business theories, such as industrial organization theory, internationalization process theory, and internalization theory. This study furthers this stream of research by examining how a migrating executive impacts the location decision of international acquisitions. The empirical findings demonstrate that both general and countryspecific international acquisition experience that has been accumulated during a migrating executive’s tenure at a prior affiliated firm impacts the executive’s current affiliated firm’s selection of host country when undertaking an international acquisition. This impact occurs through inter-organizational learning, particularly learning-by-hiring. The empirical findings show that the impact of country-specific inter-organizational learning is greater than that of general inter-organizational learning. We have also argued that industry similarity between the migrating executive’s prior and current affiliated firms is a contextual factor that impacts the above relationships. We found evidence supporting the argument that when the migrating executive is from another firm in the same industry rather than from a different industry, the positive association between inter-organizational learning through a migrating executive’s country-specific international acquisition experience and a country’s likelihood of being selected by a firm as host country in an international acquisition is strengthened. Though it is widely accepted that top executives form the microfoundations of strategic actions and impact decisions related to a firm’s international strategy (e.g., Carpenter & Fredrickson, 2001; Lee & Park, 2008; Lin & Liu, 2012), extant studies have neglected the impact such executives have on a firm’s host country selection decision when undertaking an international acquisition. For instance, prior research has shown that top executives’ international work experience or international exposure affects the likelihood of forming international strategic alliances (Lee & Park, 2008) as well as engaging in international diversification (Carpenter & Fredrickson, 2001). However, this line of research has only explored the impact of the top executives’ general international knowledge and experience. Partially due to data constraints, how a top executive’s international work experience in a specific foreign country affects strategic actions associated with that country has not been explored. That is to say, while a migrating executive can bring country-specific knowledge to the current firm, the impact of this country-specific knowledge and experience has been left untouched. Therefore, this study positions itself as a pioneer in the exploration of the impact executive migration has on a firm’s selection of host country when undertaking an international acquisition. Further contributions of this study encompass the following aspects. First, this study contributes to the international mergers and acquisitions literature by adding a new learning conduit that is critical yet has been neglected by prior research. Prior research has documented that a firm may learn from or imitate other firms when determining its international location by observing the number of foreign sites set up by other firms in a given country (e.g., Henisz & Delios, 2001). Prior 8

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References

further demonstrate that the effect of country-specific inter-organizational learning is greater than that from general inter-organizational learning. Boards of directors should take these findings into consideration when they recruit new CEOs. Additionally, as determining which country to enter is an important strategic decision for a firm, this study expects that migrating executives play a crucial role as a determinant of international market entry, in addition to country- and organization-level factors. The results of this study may thus guide a firm to recruit appropriate migrating executives with country-specific international acquisition knowledge and experience accumulated in prior affiliated firms in order to successfully enter the foreign markets that the firm is planning to enter. Finally, prior research has shown that a firm’s prior general and country-specific international acquisition experience may form a type of firm momentum or trigger organizational inertia. To avoid being trapped by organizational inertia, recruiting firms may seek to hire migrating CEOs, i.e., outside CEO successors, with experience and knowledge that complement the firms’ prior international acquisition experience. This study is not without its limitations, which can offer directions for future research. First, this study only focuses on the effects of migrating executives’ learning acquired through their prior international acquisition experiences. However, migrating executives may undergo other types of experiential learning, such as through international work experience, and vicarious learning through their prior affiliated firms’ board interlocks during their prior tenures with other firms (Tuschke, Sanders, & Hernandez, 2014). For future research, it may therefore be interesting to simultaneously examine the effects of different types of migrating executives’ experiential and vicarious learning. Second, this study uses a three-year period to capture inter-organizational learning through a migrating CEO as related to the CEO’s prior general and country-specific international acquisition experience. Although prior research has indicated that more current experience is most critical to forming the knowledge base of migrating executives (e.g., Boeker, 1997), it may be interesting to measure inter-organizational learning effects by developing a more comprehensive method. Finally, this study only examines the impact of inter-organizational learning through executive migration on a firm’s host country selection decision when undertaking an international acquisition. However, though prior research has documented that different types of learning or experiences affect the success of international acquisitions (e.g., Nadolska & Barkema, 2014), this study has left their impact on the success of the international acquisitions untouched. Consequently, future research may explore how the different experiences that a migrating executive brings impact the success of international acquisitions. To the best of our knowledge, this is the first study to explore the effects of executive migration on a firm’s acquisition decisions related to host country selection. Departing from prior research, which has emphasized the driving forces associated with country, industry, and organizational factors, this study directs attention to the influence of migrating executives. This study thus integrates executive migration into international business research. We believe that this study demonstrates that top executives in general, and migrating CEOs in particular, can be a critical driving force that impacts firms’ acquisition decisions related to host country selection. We hope that this study will facilitate future research on the impact of executive migration on other strategic choices within the context of international business.

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