The Role Of Director Interlocks On A Firm's Choice Of Foreign Market Entry Mode

Abstract

This study investigates the role of director interlocks and how it can have an influence on a firm’s choice of foreign market entry mode. A review of foreign market entry mode literature has indicated a lack of research from the perspective of decision makers in a firm, particularly the board of directors. While literature recognises the influence of directors on strategic decisions of a firm, the influence of director interlocks on a firm’s choice of entry mode has been relatively unexamined. Director interlocks occur when directors of a firm serve as board members of other firms and have been recognised as a facilitating mechanism for learning and transfer of experiences between firms. This study hypothesized that director interlocks with firms that have high control entry mode experience can have a positive influence over a focal firm’s adoption of high control entry mode. This was followed by an investigation into how the director interlocks – entry mode relationship can be further impacted by the relatedness of the new business activity to a focal firm’s core business. In addition, further analysis was performed by investigating how the director interlocks – entry mode relationship in unrelated business activities can be further amplified by the presence of outside directors with an active CEO appointment and when inside directors receive a greater proportion of annual stock options. Using a quantitative approach, the main findings of this study demonstrated a positive association between director interlocks with firms that have high control entry mode experience and a focal firm’s adoption of high control entry mode. Mixed findings were found for the role of business relatedness, outside directors with an active CEO appointment and when inside directors receive a greater proportion of annual stock options. This study contributes to the foreign market entry mode and director interlock literature by merging perspectives from these two different streams of research areas and paves the way forward for future research. This study highlights the value of strategic involvement of directors in a firm’s strategies and demonstrates the importance of director interlock linkages for foreign market expansion plans. It offers valuable insights to help facilitate understanding on the role of director interlocks in influencing a firm’s choice of foreign market entry mode as well as how director interlocks can be leveraged to deliver the highest possible strategic benefits and value to a firm.