The effect of uncertainty on FDI entry mode decisions: The influence of family ownership and involvement in the board of directors

Ming-Sung Kao, Anthony Kuo*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

This study aims to resolve the debate regarding whether family owners facilitate or restrain internationalization, by examining the role of family owners as firms cope with uncertainty. According to the transaction cost economics (TCE) perspective, which differentiates between internal (behavioral) uncertainty and external (environmental) uncertainty, firms tend to choose wholly-owned subsidiaries over joint ventures as internal uncertainty and external uncertainty decrease. We hypothesize that, due to family members' concerns regarding the preservation of socioemotional wealth (SEW), firms with higher family ownership and involvement in the board are even more likely to choose wholly-owned subsidiaries over joint ventures as internal uncertainty and external uncertainty decrease. We use a sample of 1463 observed investments from 681 companies publicly listed on the Taiwan Stock Exchange to test our hypotheses. The empirical results show that family owners' involvement in the board facilitates internationalization when facing low internal uncertainty; as internal uncertainty decreases, firms with higher family involvement in the board have a higher propensity to choose wholly-owned subsidiaries, the high-commitment FDI entry mode.

Original languageEnglish
Pages (from-to)224-236
Number of pages13
JournalJournal of family business strategy
Volume8
Issue number4
DOIs
StatePublished - Dec 2017

Keywords

  • Internationalization
  • Entry strategy
  • Uncertainty
  • Socioemotional wealth
  • Family involvement
  • FOREIGN DIRECT-INVESTMENT
  • SOCIOEMOTIONAL WEALTH
  • INSTITUTIONAL ENVIRONMENT
  • CULTURAL DISTANCE
  • NATIONAL CULTURE
  • CONTROLLED FIRMS
  • JAPANESE FIRMS
  • JOINT VENTURE
  • CHOICE
  • INTERNATIONALIZATION

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