Abstract
This study aims to bridge the research on the internationalization of small- and medium-sized enterprises (SMEs) with the literature on initial public offerings (IPOs). It investigates how IPOs affect SMEs’ foreign investment decisions as they internationalize. We argue that IPOs enable SMEs to engage in a period of accelerated foreign expansion, resulting in a wave-like pattern, as suggested by Håkanson and Kappen’s (J Int Bus Stud 48(9):1103–1113, 2017) ‘Casino model’ of internationalization. We also propose that there will be a post-IPO shift in SMEs entering less familiar locations and towards taking higher ownership stakes in new subsidiaries. We use a difference-in-differences design combined with coarsened exact matching to isolate the effects of IPOs. Our analysis of overseas investments by a matched sample of newly listed Japanese manufacturing SMEs and their private counterparts provides strong evidence that SMEs accelerate the pace of establishing new foreign subsidiaries after going public. The results also reveal nuanced changes in the location and ownership patterns in the post-IPO period. This study identifies the IPO as a significant antecedent to SME foreign expansion and offers a new explanation for intertemporal variance in the pace, direction, and commitment of the SME internationalization process.
Highlights
Internationalization is of great strategic significance to the evolution and performance of small and medium-sized enterprises (SMEs) (Lu & Beamish, 2001; Schwens, Zapkau, Bierwerth, Isidor, Knight, & Kabst, 2018)
We increased the threshold to 80% as prior studies have classified subsidiaries with more than 80% foreign ownership as wholly owned subsidiaries according to the Financial Accounting Standards Board guidelines (Dhanaraj & Beamish, 2004; Gomes-Casseres, 1990), which represent greater commitment than international joint ventures (IJVs)
It provides corroborating evidence that internationalization can proceed in a wave-like pattern as the Casino model suggests, and it identifies the initial public offerings (IPOs) as a significant antecedent to the wave-like pattern (Hakanson & Kappen, 2017)
Summary
Internationalization is of great strategic significance to the evolution and performance of small and medium-sized enterprises (SMEs) (Lu & Beamish, 2001; Schwens, Zapkau, Bierwerth, Isidor, Knight, & Kabst, 2018). Based on a reinterpretation of the data from the seminal studies (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975), their ‘Casino model’ of internationalization posits that firms aim to capitalize on existing local market opportunities by deploying and exploiting ‘‘non-location-bound, general internationalization capabilities’’ (Hakanson & Kappen, 2017: 1108) and to diversify risk by placing multiple bets through the concurrent establishment of multiple foreign operations These authors note that a period of intensified foreign expansion requires significant resources and, ‘‘a firm’s propensity to engage in ‘casino internationalization’ is clearly contingent on the quantity of available financial and other resources at its disposal’’ (Hakanson & Kappen, 2017: 1106, italicized in original). Their claims have yet to be subjected to further hypothesis testing in different contexts, and there is need for empirical evidence of intertemporal variation in internationalization activities to substantiate the complementarity of the Casino model to the Uppsala model
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