Do Prominent CEOs Favor Riskier Foreign Country Entry Modes?

Abstract

One of the most commonly used international strategies is cross-border acquisition and cross-border alliance. While both strategies are essential in entering foreign countries, each strategy is associated with different risk levels. However, the theoretical basis for an explanation of a firm's choice of foreign country entry mode in light of the CEO prominence is somewhat limited. In this paper, I argue that a firm's choice of entry mode in a foreign country can be influenced by the CEO's level of prominence. In particular, I contend that prominent CEOs would be more likely to be oriented towards increasing cross-border acquisitions while reducing cross-border alliances. Additionally, I also contend that such a relationship has the potential to be moderated if the CEO is a generalist or possesses equity ownership. As a means of testing these relations, I collect data from S&P 1500 U.S based firms and empirically examine how CEO prominence influences a firm's decision between cross-border acquisition and cross-border alliance. Results indicate that prominent CEOs are more likely to increase cross-border acquisitions while decreasing cross-border alliances. In addition, I find that this tendency tends to increase when the CEO is also a generalist, whereas it diminishes when the CEO has high equity ownership.