The effect of executive incentives on FDI ambidexterity

Abstract

Purpose This paper aims to examine different hypotheses concerning the effects of executive incentive on the degree of Chinese foreign direct investment (FDI) ambidexterity. Specifically, this study provides new insights on how executive equity incentive and executive control right incentive may affect overseas ambidextrous strategy of Chinese enterprises. Design/methodology/approach This study used panel data of Chinese manufacturing listed companies in 2006-2015 to explore the relationships between related factors. Hypotheses are tested by using regression analysis. Findings This study found that executive equity incentive is positively related to the degree of FDI ambidexterity. It also found that the level at which control right incentives of executive are made has a curvilinear relationship with degree of FDI ambidexterity. Higher level of control right incentive of executive will be associated with higher degree of FDI ambidexterity; however, beyond some level, higher control right incentive of executive will be associated with lower degree of FDI ambidexterity. Research limitations/implications This paper has implications to future research and companies’ everyday practice on ambidextrous FDI strategy. Originality/value Based on the principal-agent framework and incentive theory, this paper offers an interesting insight of achieving balance of ambidextrous strategy for Chinese multinational enterprises by involving the different roles of executive equity incentive and executive control right incentive they played.

Exploratory and exploitative OFDI from emerging markets: Impacts on firm performance

“…Exploitative OFDI enables firms to gain deeper, more refined knowledge about a particular market. In fact, EM firms engage in both types of learning, which is their approaches to international expansion are both deep and broad (Lyles et al, 2014;Li, Gao, Shen, & Zhang, 2018). In this study, we suggest that both exploratory and exploitative OFDI are important for improving the performance of EM firms; yet, their paths for performance gain are through different mechanisms, for different periods, and subject to different industry conditions.…”

“…However, there have been concerns about which approach is more plausible and effective: explore and exploit simultaneously or take sequential and rotating moves? Some scholars point out that exploration and exploitation are orthogonal (Li et al, 2018) and that simultaneously maintaining high levels of exploration and exploitation can promote firm performance (He & Wong, 2004). Others suggest that exploitation and exploration are recursively and co-evolutionarily related (Zollo & Winter, 2002), such that firms can enjoy performance improvement through time-paced, ambidextrous moves (Rothaermel & Deeds, 2004).…”

“…While this study focuses on sequential ambidexterity, we invite future research to study different types of ambidexterity in EM firms' OFDI. Given there are only a handful of empirical studies on the topic (e.g., Li et al, 2018;Wang, Luo, Maksimov, Sun, & Celly, 2019), more research is needed to tackle the question of how firms balance exploration and exploitation in conducting OFDI to achieve temporal ambidexterity.…”

Research on the influence mechanism of digital innovation in high‐tech enterprises — An inter‐organizational perspective

“…Executive compensation is crucial for motivating management to work diligently and reducing opportunistic conduct. Plans of compensation can be used to influence the risk preferences of managers, thereby impacting the company's strategy and performance (Li et al, 2018). According to stakeholder theory, controlling shareholders typically implement supervision and incentives to achieve a "convergence of interests" between shareholders and executives, thereby reducing shareholder-agent conflicts.…”

“…As a common method of organizational motivation, salary incentives have always been a focus for organizational managers. According to agency literature, managers may attempt to maximize their utility by consuming excessive company resources or selecting suboptimal investments (Li et al, 2018). Executive compensation is crucial for motivating management to work diligently and reducing opportunistic conduct.…”