The board mechanism and entry mode choice

Abstract

Prior studies on entry mode choice are mostly grounded in rational analysis models made from the economic perspective without considering the orientations or concerns of managers. Based on agency theory and resource dependency theory, our work explores how the board of directors, the highest authority in a firm's control system, influences the managerial selection of foreign market entry modes. By simultaneously addressing the monitoring and advisory roles of the board, and the influence of director incentives and competencies, we find that the board mechanism has a significant impact on a firm's foreign market entry mode choice. Directors with experience in foreign direct investment decisions, either regarding a specific target host country or a variety of environmental settings, tend to encourage the choice of acquisitions over joint ventures in foreign market entry decisions. Equity holdings of directors are also positively associated with the choice of acquisitions. The proportion of outside directors, conversely, is not found to have a significant influence. Furthermore, we find that directors' stockholdings positively affect the relationship between director experience and entry mode choice.