What types of top management teams' experience matter to the relationship between political hazards and foreign subsidiary performance?

Abstract

Although the relationship between political hazards and foreign subsidiary performance has been well documented in the prior literature, the contingent roles of the top management team (TMT) in managing political hazards have largely been ignored. Drawing upon the institution-based view, upper echelons theory, and TMT experience literature, this study focuses on foreign subsidiaries' TMT and contends that TMT's different types of experience will distinctively influence the degree to offset substantial costs associated with political hazards so as to obtain superior performance. More specifically, in the current study, we consider duration, location, distance, and the direction of distance as the main dimensions of TMT experience. Using a panel dataset of 11,292 foreign subsidiaries across 53 countries from 2004 to 2013, we find that the duration of TMT's international experience exacerbates the negative impact of political hazards on subsidiary performance, while the duration of TMT's local experience does not have a significant moderating effect. In addition, we also find that the negative performance impact of political hazards is significantly alleviated only for subsidiaries whose TMT experienced a higher level of political hazards than the focal country in the past. Our study offers a comprehensive understanding of what types of top managers' experience matter to the management of political hazards.