CEO Overconfidence and MNCs’ Foreign Entry

Abstract

Upper echelon theory (UET) has been a widely researched theory in management research, explaining that a firm’s strategic actions are driven by the psychological traits of its top executives. However, there still have been few studies that link UET to strategic actions of multinational companies (MNCs) in the context of international business (IB). In this paper, we apply UET to IB and examine how CEO overconfidence influences MNCs’ decision to enter a foreign country. We also investigate contextual factors (geographic distance and host country experiences) which affect the relationship between CEO overconfidence and MNCs’ foreign entry. By creating and analyzing the unique longitudinal dataset of Japanese MNCs, we contribute to unpacking theoretical mechanisms of CEOs’ overconfidence in their MNC’s foreign entry decisions. We extend UET to the context of IB and shed new light on explaining MNC strategic actions.