When are emerging market multinationals more risk taking?

Abstract

Research Summary: This study examines the endogenous conditions under which emerging market multinationals (EMNEs) are more risk taking in entering and competing abroad. We argue that strategic asset‐seeking intent, financial abundance, and inward internationalization enable EMNEs to better manage uncertainty and capture benefits, resulting in greater levels of risk‐taking behaviors in foreign entry mode and global dispersion. We offer a process framework showing that the effects of endogenous forces on risk‐taking behaviors take place via a partial mediating role of risk‐taking propensity (entrepreneurial attitude toward risk). Our analysis of Chinese MNEs provides strong evidence validating these arguments. We discuss implications of our findings, intending to invigorate scholarly interests in risk management in a new era of globalization and stimulate understanding of EMNEs' strategic behaviors. Managerial Summary: Many EMNEs are risk taking and radical in undertaking outbound foreign direct investment (OFDI). Yet, it is misleading to assume that all EMNEs have high risk‐taking propensity or that all risk‐taking EMNEs are necessarily equally radical in all their international business (IB) activities. We seek to understand which firm‐specific forces importantly affect these firms' risk‐taking behaviors. Our analyses based upon Chines MNEs reveal that firms with greater levels of strategic asset‐seeking intent, financial abundance, and inward internationalization present significantly higher risk‐taking propensity and risk‐taking acts, including risky entry modes such as acquisitions and aggressive geographic dispersion.

How does de‐globalization affect location decisions? A study of managerial perceptions of risk and return

“…As such, our findings clearly reflect the sample of managers from developed markets. Previous research found that emerging market firms take greater risks, especially in their early stage of internationalization to compensate for their competitive weaknesses and reduce the institutional constraints at home (Cuervo‐Cazurra & Ramamurti, ; Guillén & García‐Canal, ; Luo & Bu, ). It is likely that such firms expand more rapidly into physically, culturally, and economically distant countries (Morck, Yeung, & Zhao, ).…”

“…Managers' risk‐taking propensity varies across individuals and it depends on the positive and negative expectations of outcomes as well as the aspiration level of the decision maker if they accept a risky alternative (Luo & Bu, ; March & Shapira, ). Miller and Friesen () define risk‐taking propensity as the degree to which managers are willing to make large and risky resource commitments that bear a reasonable chance of costly failure.…”

What Stops the Internationalization of Emerging Market Multinational Corporation (EMNCs): Designing a Strategic Framework for Global Business

“…The theoretical contribution of the study is to determine the specificity and identical EMNC's risk behavior. Previous globalization experiences help organizations to be more aggressive and risk-taker through a process of acquiring the existing business and attain global expansion which helps organizations to build strong capacity and capability to survive by reducing the completion in the market (Luo & Bu, 2018).…”

Diversification strategies and equity market performances

“…It is important to understand which firm-specific forces importantly affect these firms' risk-taking behaviors. For example, Luo and Bu (2018) find that Chinese MNEs with greater levels of "strategic asset-seeking intent, financial abundance, and inward internationalization present significantly higher risk-taking propensity and risk-taking acts, including risky entry modes such as acquisitions and aggressive geographic dispersion." On the other hand, Akbank, one of the largest Turkish banks, has taken many years and painstaking analyses to expand to neighboring countries (Crossan and Apaydin, 2009).…”