Reducing uncertainty in follow‐up foreign direct investment: Imitation by family firms

Abstract

Research Summary This paper examines to what extent family firms rely on imitation when deciding on foreign investment growth, highlighting the role of mimetic isomorphism and social categories. We propose that family firms pursue trait‐based imitation to reduce uncertainty in follow‐up foreign direct investment (FDI), and test our predictions on a large sample of German family firms. We find that family firms imitate successful peers that are also owned by a family. A family firm's tendency to imitate is strengthened during the initial years in a foreign market or when the firm is publicly listed. Performance below or above social aspiration strengthens or weakens imitation, respectively. We discuss the implications for research at the nexus of foreign investment growth, social categories, and the pursuit of imitation by family firms. Managerial Summary Experience in a foreign market helps firms to reduce uncertainty in follow‐up FDI. Besides experience gathered from own investments, firms might also learn from investment decision of peers in this market. By examining the foreign investment strategies of family firms over time, this study identifies mimetic behavior in follow‐up FDI. The inclination to imitate visible, family‐owned peer firms is stronger during the initial years in a foreign market, when underperforming relative to competitors, and when there are outside shareholders. Family firm managers rely less on imitation when outperforming their competitors.

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