Foreign Firms’ Outsiderness, Status, and Cross-Border Tie Formation Through Local Intermediaries

Abstract

In this paper, we develop and test the idea that the extent to which foreign firms benefit from third-party referral, introduction, and endorsement, especially those provided by local intermediaries, in obtaining cross-border exchange relationships depends on the perceived outsiderness associated with their country of origin. Using the empirical setting of M&A legal advisory markets across 40 different countries from 2001 to 2016, where we tracked both collaborative relationships among law firms and market relationships between foreign law firms and local client companies, we find evidence consistent with our prediction that intermediary-induced cross-border tie formation is most likely to occur when local companies have low familiarity with and high distrust toward foreign firms’ country of origin. Further, we show that lower-status (higher-status) foreign outsiders tend to benefit more (less) from local intermediary ties and that higher-status local incumbents (intermediaries) are less likely to connect their high-status foreign collaborators to their local clients. By bringing together divergent research on triadic closure, the liability of foreignness, and status, this study provides valuable opportunities for cross-fertilization across different research streams, enhancing our understanding of a complex phenomenon of cross-border triadic closure that manifests as the needs and motivations of multiple parties become more or less aligned with structural opportunities provided to them.