Firms In Emerging Countries Research Articles

Dissecting the Long‐Term Performance of the Chinese Stock Market

ABSTRACTDomestically listed Chinese (A‐share) firms have lower stock returns than externally listed Chinese, developed, and emerging country firms during 2000 to 2018. They also have lower net cash flows than matched unlisted Chinese firms. The underperformance of both stock and accounting returns is more pronounced for large A‐share firms, while small firms show no underperformance along either dimension. Investor sentiment explains low stock returns in the cross‐country and within‐A‐share samples. Institutional deficiencies in listing and delisting processes and weak corporate governance in terms of shareholder value creation are consistent with the underperformance in stock returns and net cash flows.

Editorial Innovation and Engineering Management in Emerging Economies

Over the past two decades, the development of emerging economies as drivers of global economic growth has been one of the most fundamental trends. Emerging economies account for more of the world's exports, including technology exports, while emerging country firms have heightened their profile in the global innovation landscape [1], [2], [3], [4]. Such changes required the building of substantial technological and engineering capabilities, but this is not the entire picture. To move up from basic to advanced innovation capabilities, firms in emerging economies have undergone a process of change and improvement in their managerial skills, by means of developing and adopting best practices of innovation and engineering management. Managerial skills are an enabling factor for dealing with systemic innovation processes and complex engineering projects. Nevertheless, while there has been substantial research on technological catching up in emerging economies, concern with how they are facing the challenges of adoption of innovation and engineering management practices have received little attention. The purpose of this Special Issue is to report on the state of the art of, and emerging trends in, research and practice of innovation and engineering management in emerging economies.

Public governance, corporate governance and excessive ESG

PurposeGrowing social concerns and ecological issues accelerate firms’ environmental, social and governance (ESG) engagement. Hence, this study aims to advance the existing literature by focusing on the interplay between institutional and firm governance mechanisms for greater ESG engagement. More specifically, the authors investigate whether public governance stimulates excessive ESG engagement and whether corporate governance moderates this relationship.Design/methodology/approachUsing a sample of 43,803 firm-year observations affiliated with 41 countries and 9 industries, the authors adopt a country, industry and year fixed-effects regression analysis.FindingsThe authors find that public governance strength via its six dimensions stimulates excessive ESG engagement. This implies that firms in countries with strong voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption are more motivated for ESG engagement. Furthermore, corporate governance negatively moderates the relationship between all public governance dimensions (except political stability) and excessive ESG engagement. This implies that public governance and corporate governance are substitutes for encouraging firms to commit to ESG. Further tests reveal that whereas these results in the baseline analyses are valid for developed countries, they are not valid in emerging markets.Research limitations/implicationsThe findings support the interplay between institutional and agency theories. In countries with strong (weak) institutional mechanisms, corporate governance becomes weak (strong) in inciting greater stakeholder engagement. This implies that the public governance mechanism alleviates agency costs, rendering internal mechanisms of corporate governance noncompulsory for ESG engagement.Practical implicationsThe findings suggest that emerging countries need to reinforce their institutions for greater accountability, regulatory quality and control of corruption, which will have a domino effect on firms in addressing stakeholder expectations. The results also advise emerging country firms to augment their internal monitoring mechanisms for greater stakeholder engagement, such as structuring boards and establishing corporate social responsibility mechanisms, committees and policies.Originality/valueThis study contributes to the recent literature investigating the role of corporate governance mechanisms in excessive ESG engagement. The study also explores whether public governance is associated with greater ESG involvement and provides a comprehensive analysis of the association between six indicators of public governance quality and excessive ESG practices in developed and emerging economies.

Financial internationalization of emerging country multinationals: evidence from India

PurposeFinancial internationalization is of particular importance to emerging country firms. Its significance arises from the impact of institutional void and related agency problems (common to emerging markets) on the internationalization path of these firms. Building on concepts from international finance, agency theory and institutional theory, this paper aims to examine the main aspects of financial internationalization by emerging country multinationals, namely, cross-listing, foreign ownership and foreign independent directors.Design/methodology/approachThis paper follows a multiple case study approach which is a good fit for the exploratory nature of this research. The interest is to examine the context-driven financial internationalization of each case firm and replicate the firm-level information to find a common strategy.FindingsThe findings suggest that financial internationalization by emerging country multinationals starts mainly as these firms plan to enter advanced country markets. It is a dynamic process that entails interaction between financial internationalization and real internationalization, as well as among different aspects of financial internationalization. Cross-listing comprises the first stage of the process. Then, foreign ownership, particularly foreign institutional investments, would increase gradually in response to advances in financial and factor markets. Recruiting foreign independent directors seems to be adopted last, possibly out of fear of losing control of strategic decisions.Originality/valueThis paper presents a unique perspective that delineates different stages of the process of financial internationalization by emerging country multinationals. This complements the efforts to explain the distinct path of internationalization followed by these firms and supplements scarce literature by including emerging multinationals from India where the matter has not yet attracted proper attention.

Cross-border mergers and acquisitions: Impact on marketing capability and firm performance

Emerging country firms have been increasingly engaging in cross-border mergers and acquisitions, and these acquirers predominantly acquire firms from developed countries. The motivation for such acquisitions is to achieve market access but also to benefit from transfers of cross-border managerial skills and knowledge. The performance of such acquisitions has started to receive some research attention, particularly financial performance, but the transfers to other areas such as marketing have not yet been explored. This article addresses this gap by studying the experience of 34 acquirers from emerging countries which acquired firms in developed countries. This study uses two-stage window data envelopment analysis (DEA) and Tobit regression to investigate the impact of these acquisitions on the marketing capability and overall firm performance of the acquiring firms. The results show that the marketing capability of the acquiring firms did improve in the post-merger years and this improvement can be partly attributed to the acquisition. The findings also show that the overall performance of the acquiring firms improved following acquisition, but this is a continuation of superior performance from the pre-merger years rather than a synergistic gain from the acquisitions.

Rating standards around the world: A puzzle?

Using panel data on S&P's credit ratings for firms from 63 countries over the 2000–2016 period, we uncover divergent patterns in the rating standards over time. Standards strengthen by 1.5 notches for U.S. firms and by 2.2 notches for other developed country firms, but weaken by 1.2 notches for emerging country firms. Default and credit spread tests show that standards tightening for U.S. and other developed country firms is likely unwarranted, whereas standards loosening for firms in emerging economies appears to be justified. This novel and puzzling evidence suggests that S&P does not adopt consistent global standards over time.

Multinational enterprises motivational factors in capitalizing emerging market opportunities and preparedness of India

PurposeThe purpose of the study is to heighten intrinsic advantages, dis-advantages, being enjoyed by emerging country firms and the motivational factors that influence multinational enterprises (MNEs) to establish long-lasting relationship with emerging economies. The study also highlights the steps initiated by India by executing reform friendly foreign direct investment policy to attract foreign investments.Design/methodology/approachThe study is descriptive in nature, based on secondary data, sourced from various reports of India Government and the Central Bank of India.FindingsThe Indian economy has undergone profound and substantial liberalization and made sweeping reforms in most of its sectors besides adopting internationalization policy agendas to upkeep their domestic firms in “going global”. However, India needs to amend the existing restrictive labour and land laws besides providing efficient employable workforce. India further needs a less cash economy, which ultimately marches into digitized credit system to build India as one of the best attractive countries in the eyes of global investors.Research limitations/implicationsAs the study is based on secondary data, it may be general, in explicit and may not be perfect in concluding decision.Social implicationsMNEs play a major force in driving globalization of the world economy. However, MNEs face a variety of complex and multiple challenges in establishing strategic control over emerging economies. In spite of all odds, MNEs generate and capture value to host country firms by applying unique business models besides combining with or buying a foreign business.Originality/valueInvestment flows to India for the past 15 years (2005-2019) are critically analysed to justify research questions. Further, in the literature “Preparedness of India”, a lot of new interesting insights, incorporated.

Building trust in cross-cultural integration: A study of Chinese mergers and acquisitions in Germany

The phenomenon of trust and trust building has been widely researched with regard to different contexts and subjects. Nevertheless, the factors that influence trust building in mergers and acquisitions (M&As) and the way in which trust affects the post-M&A process remain unclear. This study explores trust development in the cross-cultural integration process following emerging country firms’ acquisitions in an advanced economy. A grounded theory model was developed to link the contextual characteristics of Chinese M&As in Germany that require the development of trust and the way in which managers understand sources of trust building. The perceived future uncertainty, different levels of technology and management, previous public discourses, and differences in institutional and cultural norms require the development of trust. The data reveal that a range of factors can foster trust development, including economic factors as well as emotional factors, such as mutual understanding, reliability, familiarity, and emotional bonding. A three-stage cross-cultural trust development theory is proposed, asserting that trust can be established based on economic factors, improved through mutual understanding and reliability, and further developed based on familiarity and emotional bonding. Trust development influences the acquiring firm’s behavior with regard to the transparency in information policies, the integration in decision-making, the exercise of control over the acquired firm, and the granting of autonomy in the cross-cultural integration processes.

Rating Standards around the World: A Puzzle?

Using panel data on S&P’s credit ratings for firms from 63 countries over the 2000–2016 period, we uncover divergent patterns in the rating standards over time. Standards strengthen by 1.5 notches for U.S. firms and by 2.2 notches for other developed country firms, but weaken by 1.2 notches for emerging country firms. Default and credit spread tests show that standards tightening for U.S. and other developed country firms is likely unwarranted, whereas standards loosening for firms in emerging economies appears to be justified. This novel and puzzling evidence suggests that S&P does not adopt consistent global standards over time.

Explaining organizational wrongdoing by emerging country firms

Are emerging country firms (EFCs) with the highest financial performance relative to industry more likely to incur in human rights controversies (HRCs) than low performing firms? What moderates this relationship? Using original panel data of a sample of 245 large public companies from Brazil, China, India, Malaysia, Mexico, Russia, South Africa and Thailand, we find that the positive relationship between EFCs performance and the likelihood to be involved in HRCs is negatively moderated by host countries’ rule of law pressures and by these firms’ intensity of adoption of corporate social responsibility policies, while it is stronger for State-Owned Enterprises (SOEs) than for non-SOEs.

Back-shoring or re-shoring: determinants of manufacturing offshoring from emerging to least developing countries (LDCs)

ABSTRACTOffshore outsourcing is mainly the flow of tasks from developed to emerging country firms in search of low cost production facilities. Many of these firms are now shifting their outsourcing activities from emerging to least developing countries. This paper shed light on determinants of firms based in emerging countries’ decision on shifting their outsourcing to least developing countries and to what extent it differs from developed country firm’s offshoring to emerging countries. Survey based data collected from offshoring client firms based first in South Korea and Taiwan and then engaged in re-shoring their outsourcing activities to Bangladesh and data was analyzed by multiple regression analysis. The current study found that offshoring firms enter into re-shoring to least developing countries to avail cost advantages; to have access to supplier capabilities and to focus more on strategic activities as well as to reap advantages from the institutional policy oriented advantages available in least developed countries. The findings revealed that several production factors have effects on firm’s re-shoring decision to LDCs. Transferring offshoring to LDCs and exporting from there to the developed country markets, the offshoring creates the global production network (GPN) integrating developing, emerging and developed countries.

Brand management practices in emerging country firms – exploring the patterns of variation and its impact on firm performance

Firms in emerging countries often face different sets of challenges in developing their brand management strategies. Drawing on the dynamic capabilities view, the present study examines brand management practices among firms in an emerging country. Drawing on a survey of 224 firms in Turkey, the study first aims to segment firms in terms of their adoption level of brand management practices and then relate them to their overall firm and brand performances. A three-cluster solution emerging from a K-means cluster analysis reveals that firms show significant differences with respect to both performance dimensions. The findings of the study also provide evidence to the view that brand management practices add to the dynamic capabilities of emerging country firms. Finally, the study concludes with practical implications and avenues for future research.

Exports-performance relationship in Russian manufacturing companies

PurposeThe purpose of this paper is to examine the relationship between export activity and firm performance for a positive impact of foreign direct investments (FDIs). The authors also analyze two possible causes of the effect: technology transfer and financial support. The theoretical background is rooted in the resource-based approach taking into account multinational companies’ perspective and the specifics of emerging markets.Design/methodology/approachThe authors propose testable hypotheses based on a review of the theory. To test the hypotheses, the authors build a sample of over 500 Russian public manufacturing firms covering the period from 2004 to 2014 and estimate regression models. Given concerns about endogeneity, the instrumental variable approach for panel data, using the GMM-estimator, is implemented.FindingsConsistent with the view that FDIs generate spillover effects, the results support the positive impact of foreign ownership on the link between exports and firms’ performance. The results underline the importance of foreign ownership: shareholders from developed countries can provide benefits to exporting companies through transferring advanced technologies and loosening financial constraints by lowering interest and raising availability of bank loans.Originality/valueThe authors provide new insights on the relationship between exports and firm performance. Given our focus on Russia, a market with high potential to draw foreign investments, the research sheds some light on how emerging country firms can benefit from having foreign shareholders with paying attention to geographical distribution of such investments. Specifically, through the overcoming of technological barriers and loosening of financial constraints, the authors show empirically that foreign capital can make up for weak local institutional infrastructure and enhance the company’s returns from internationalization.

Profiting from Innovation through Cross‐Border Market co‐Creation and co‐Opetition: The Case of Global Pharmaceuticals

We study the impact of the new intellectual property (IP) regime, as shaped by international agreements such as the Trade‐Related Aspects of Intellectual Property Rights (TRIPS), on the competitive positions of emerging country firms and advanced country multinational enterprises (AMNEs). Drawing on ideas from the IP, international business, and strategic management literatures, we formalize the market co‐creation perspective and extend it to the emerging country – AMNE context. Using the pharmaceutical industry as our focus, we show that market co‐creation‐based co‐opetition is preferable to both emerging and advanced country firms when the former can leverage their firm‐ and country‐specific advantages and complementary assets to co‐create new market space, even as they compete for value capture. We further show that co‐opetition is fostered when the bargaining power of the AMNE (afforded through trade agreements) is counterbalanced by actions of emerging country firms and a robust IP law interpretation and enforcement by the host country's courts.

Internationalization of Mexican family firms: the cases of Xignux and Grupo Alfa

PurposeThis theory testing paper compares and analyzes the internationalization process of two Mexican family-owned firms: Xignux and Grupo Alfa. This paper is intended to offer a theoretical understanding using existing frameworks such as OLI (ownership, location and internationalization), LLL (linkage, leverage and learning) and the Uppsala model. Furthermore, it tests whether the theoretical framework of organizational capabilities and international ventures fits the internationalization of these companies.Design/methodology/approachThis paper is based on case study methodology using the companies’ publically available data. Both within-case and cross-case analysis were carried out to identify specific traits in the internationalization pattern of both firms; cases were also compared with literature to identify conflicts and similarities that enable a better understanding of the phenomenon.FindingsIt was found that not a single theory fully and satisfactorily explains the internationalization of both Xignux and Alfa, instead, issues like internationalization into low psychic distance countries, establishment of strategic alliances and the exploitation of locational-specific advantages contributed in the international expansion of the studied companies.Originality/valueThere is an increasing amount of available literature regarding internationalization strategies and internationalization theories applied to developing and emerging country firms. However, most of the studies analyze companies from Asia, and there are limited studies on multilatinas (i.e. Latin American multinationals). Furthermore, scholars in the field of international business are still debating whether the existing theories, or an adaptation of them, explain the internationalization of multilatinas.

Overcoming the liability of origin by doing no-harm: Emerging country firms’ social irresponsibility as they go global

As emerging (and developing) country firms internationalize, they often need to build legitimacy to overcome home-country liabilities. We argue that international legitimacy is at risk if these firms do harm in the conduct of their business, and we investigate the extent to which host countries’ speech and press freedoms influence corporate social irresponsibility (CSIR) for a sample of Multilatinas, observed during the period 2003–2012. We do find evidence of lower CSIR among Multilatinas which have adopted explicit CSR policies and have higher levels of investment in countries characterized by strong speech and press freedoms.

Spatial distribution of innovation networks, technological competencies and degree of novelty in emerging economy firms

ABSTRACTThis paper analyses the relationship of the accumulation of technological competencies at the firm level, the spatial distribution of the firm's innovation networks and the degree of novelty of product innovation. Firm-based primary data collected in two innovative regions in emerging economies are used to predict higher degrees of novelty in emerging economy firms. Similarly to advanced economy firms, the results show that international linkages are associated with higher degrees of novelty. However, new-to-the-world innovation in emerging country firms is fundamentally externally driven, suggesting that international linkages seem to be a compensating mechanism for the initially lower technological capabilities rather than a complementary source of knowledge.

Multilatinas’ legitimacy and social irresponsibility across institutional environments

Emerging country firms are often considered to suffer from lack of legitimacy due to poor reputation and institutional weaknesses in their home countries. Adoption of Corporate Social Responsibilit...

Is Co-Invention Expediting Technological Catch Up? A Study of Collaboration between Emerging Country Firms and EU Inventors

Firms from emerging countries are going global, and Europe is attracting around one-third of their direct outward investments. Growing internationalization constitutes an opportunity for technological catch up. In this paper we analyze Brazilian, Indian, and Chinese cross-border inventions with European Union (EU-27) inventors, during the period 1990–2012. Our results suggest that these inventions represent an opportunity for emerging country firms to accumulate technological capabilities, access frontier knowledge, and appropriate the property rights of co-inventions. This paper contributes to understanding catching up by emerging country firms.

International Collaboration through Market Co-Creation: Strategies for Emerging Country Firms

Drawing on ideas centred on market co-creation and complementary assets, we propose that developing and emerging country (DEC) pharmaceutical firms, which operate in an increasingly challenging env...