IDEAS home Printed from https://ideas.repec.org/a/eee/worbus/v51y2016i5p787-799.html
   My bibliography  Save this article

Mitigating the dual liability of newness and foreignness in capital markets: The role of returnee independent directors

Author

Listed:
  • Li, Weiwen
  • Bruton, Garry D.
  • Filatotchev, Igor

Abstract

Foreign firms undergoing an initial public offering in developed economies face a dual liability of newness and foreignness that can negatively impact the firm’s ability to access capital. In this study, we examine the ability of returnee independent directors to overcome such a liability among 232 foreign listings in the U.S. We find that returnee independent directors positively impact the price premium of the foreign IPO. We also find that this relationship is contingent on the level of ownership retained by non-independent directors, the level of ownership retained by venture capitalists, and investor protection in the firm’s country of origin.

Suggested Citation

  • Li, Weiwen & Bruton, Garry D. & Filatotchev, Igor, 2016. "Mitigating the dual liability of newness and foreignness in capital markets: The role of returnee independent directors," Journal of World Business, Elsevier, vol. 51(5), pages 787-799.
    • Handle: RePEc:eee:worbus:v:51:y:2016:i:5:p:787-799
    DOI: 10.1016/j.jwb.2016.06.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S109095161630044X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jwb.2016.06.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jing Zhang & Justin Tan & Poh Wong, 2015. "When does investment in political ties improve firm performance? The contingent effect of innovation activities," Asia Pacific Journal of Management, Springer, vol. 32(2), pages 363-387, June.
    2. Hursti, Jani & Maula, Markku V.J., 2007. "Acquiring financial resources from foreign equity capital markets: An examination of factors influencing foreign initial public offerings," Journal of Business Venturing, Elsevier, vol. 22(6), pages 833-851, November.
    3. Mark Humphery-Jenner & Jo-Ann Suchard, 2013. "Foreign venture capitalists and the internationalization of entrepreneurial companies: Evidence from China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(6), pages 607-621, August.
    4. David Ahlstrom & Garry D. Bruton, 2006. "Venture Capital in Emerging Economies: Networks and Institutional Change," Entrepreneurship Theory and Practice, , vol. 30(2), pages 299-320, March.
    5. Hitt, Michael A. & Li, Dan & Xu, Kai, 2016. "International strategy: From local to global and beyond," Journal of World Business, Elsevier, vol. 51(1), pages 58-73.
    6. Ahlstrom, David & Bruton, Garry D. & Yeh, Kuang S., 2008. "Private firms in China: Building legitimacy in an emerging economy," Journal of World Business, Elsevier, vol. 43(4), pages 385-399, October.
    7. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Beugelsdijk, Sjoerd & Frijns, Bart, 2010. "A cultural explanation of the foreign bias in international asset allocation," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2121-2131, September.
    10. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    11. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
    12. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 411-432, September.
    13. Peng, Mike W. & Su, Weichieh, 2014. "Cross-listing and the scope of the firm," Journal of World Business, Elsevier, vol. 49(1), pages 42-50.
    14. Sergei Sarkissian, 2004. "The Overseas Listing Decision: New Evidence of Proximity Preference," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 769-809.
    15. Igor Filatotchev & Xiaohui Liu & Trevor Buck & Mike Wright, 2009. "The export orientation and export performance of high-technology SMEs in emerging markets: The effects of knowledge transfer by returnee entrepreneurs," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(6), pages 1005-1021, August.
    16. Cui, Lin & Meyer, Klaus E. & Hu, Helen Wei, 2014. "What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms," Journal of World Business, Elsevier, vol. 49(4), pages 488-501.
    17. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1015-1049.
    18. Zhao, Li & Gu, Haiying & Yue, Chengyan & Ahlstrom, David, 2013. "Consumer welfare and GM food labeling: A simulation using an adjusted Kumaraswamy distribution," Food Policy, Elsevier, vol. 42(C), pages 58-70.
    19. Michael N. Young & Mike W. Peng & David Ahlstrom & Garry D. Bruton & Yi Jiang, 2008. "Corporate Governance in Emerging Economies: A Review of the Principal–Principal Perspective," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 196-220, January.
    20. Mike W. Peng & Sunny Li Sun & Lívia Markóczy, 2015. "Human Capital and CEO Compensation during Institutional Transitions," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 117-147, January.
    21. Ugur Celikyurt & Merih Sevilir & Anil Shivdasani, 2014. "Venture Capitalists on Boards of Mature Public Firms," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 56-101, January.
    22. repec:hal:spmain:info:hdl:2441/4km7l02j139aj8hl7kcccmqk9s is not listed on IDEAS
    23. Marc Essen & J. Oosterhout & Michael Carney, 2012. "Corporate boards and the performance of Asian firms: A meta-analysis," Asia Pacific Journal of Management, Springer, vol. 29(4), pages 873-905, December.
    24. Curt B. Moore & R. Greg Bell & Igor Filatotchev & Abdul A. Rasheed, 2012. "Foreign IPO capital market choice: Understanding the institutional fit of corporate governance," Strategic Management Journal, Wiley Blackwell, vol. 33(8), pages 914-937, August.
    25. Ahlstrom, David & Levitas, Edward & Hitt, Michael A. & Dacin, M. Tina & Zhu, Hong, 2014. "The three faces of China: Strategic alliance partner selection in three ethnic Chinese economies," Journal of World Business, Elsevier, vol. 49(4), pages 572-585.
    26. Pollock, Timothy G. & Chen, Guoli & Jackson, Eric M. & Hambrick, Donald C., 2010. "How much prestige is enough? Assessing the value of multiple types of high-status affiliates for young firms," Journal of Business Venturing, Elsevier, vol. 25(1), pages 6-23, January.
    27. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    28. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, vol. 12(4), pages 693-714, September.
    29. Xiaohui Liu & Jiangyong Lu & Seong-jin Choi, 2014. "Bridging Knowledge Gaps: Returnees and Reverse Knowledge Spillovers from Chinese Local Firms to Foreign Firms," Management International Review, Springer, vol. 54(2), pages 253-276, April.
    30. Xiaohui Liu & Jiangyong Lu & Igor Filatotchev & Trevor Buck & Mike Wright, 2010. "Returnee entrepreneurs, knowledge spillovers and innovation in high-tech firms in emerging economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(7), pages 1183-1197, September.
    31. Thomas J. Chemmanur & Karthik Krishnan & Debarshi K. Nandy, 2011. "How Does Venture Capital Financing Improve Efficiency in Private Firms? A Look Beneath the Surface," The Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 4037-4090.
    32. Loughran, Tim & Ritter, Jay R, 1997. "The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-1850, December.
    33. Ruth V. Aguilera & Igor Filatotchev & Howard Gospel & Gregory Jackson, 2008. "An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities," Organization Science, INFORMS, vol. 19(3), pages 475-492, June.
    34. R. Greg Bell & Curt B. Moore & Hussam A. Al–Shammari, 2008. "Country of Origin and Foreign IPO Legitimacy: Understanding the Role of Geographic Scope and Insider Ownership," Entrepreneurship Theory and Practice, , vol. 32(1), pages 185-202, January.
    35. David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, August.
    36. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    37. Srilata Zaheer & Elaine Mosakowski, 1997. "The Dynamics Of The Liability Of Foreignness: A Global Study Of Survival In Financial Services," Strategic Management Journal, Wiley Blackwell, vol. 18(6), pages 439-463, June.
    38. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    39. Chahine, Salim & Arthurs, Jonathan D. & Filatotchev, Igor & Hoskisson, Robert E., 2012. "The effects of venture capital syndicate diversity on earnings management and performance of IPOs in the US and UK: An institutional perspective," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 179-192.
    40. R Greg Bell & Igor Filatotchev & Abdul A Rasheed, 2012. "The liability of foreignness in capital markets: Sources and remedies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(2), pages 107-122, February.
    41. Yunshi Liu & Linda Wang & Li Zhao & David Ahlstrom, 2013. "Board turnover in Taiwan’s public firms: An empirical study," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1059-1086, December.
    42. Schmidt, Tobias & Sofka, Wolfgang, 2009. "Liability of foreignness as a barrier to knowledge spillovers: Lost in translation?," Journal of International Management, Elsevier, vol. 15(4), pages 460-474, December.
    43. Jun-Koo Kang & Rene M. Stulz, 1997. "Is Bank-Centered Corporate Governance Worth It? A Cross-Sectional Analysis of the Performance of Japanese Firms during the Asset Price Deflation," NBER Working Papers 6238, National Bureau of Economic Research, Inc.
    44. Garry D. Bruton & David Ahlstrom & Kulwant Singh, 2002. "The impact of the institutional environment on the venture capital industry in Singapore," Venture Capital, Taylor & Francis Journals, vol. 4(3), pages 197-218, July.
    45. Mariassunta Giannetti & Guanmin Liao & Xiaoyun Yu, 2015. "The Brain Gain of Corporate Boards: Evidence from China," Journal of Finance, American Finance Association, vol. 70(4), pages 1629-1682, August.
    46. Garry D. Bruton & Igor Filatotchev & Salim Chahine & Mike Wright, 2010. "Governance, ownership structure, and performance of IPO firms: the impact of different types of private equity investors and institutional environments," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 491-509, May.
    47. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    48. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
    49. Zahra Bhanji & Joanne E Oxley, 2013. "Overcoming the dual liability of foreignness and privateness in international corporate citizenship partnerships," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(4), pages 290-311, May.
    50. Mark L. Defond & Mingyi Hung, 2004. "Investor Protection and Corporate Governance: Evidence from Worldwide CEO Turnover," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 269-312, May.
    51. Wm. Gerard Sanders & Steven Boivie, 2004. "Sorting things out: valuation of new firms in uncertain markets," Strategic Management Journal, Wiley Blackwell, vol. 25(2), pages 167-186, February.
    52. David Ahlstrom & David Lamond & Zhujun Ding, 2009. "Reexamining some management lessons from military history," Asia Pacific Journal of Management, Springer, vol. 26(4), pages 617-642, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xie, Zaiyang & Wang, Liang, 2022. "Returnee managers as an asset for emerging market multinational enterprises: Chinese cross-border acquisitions (2008–2017)," Journal of World Business, Elsevier, vol. 57(2).
    2. Clyde Eiríkur Hull & Zhi Tang & Jintong Tang & Jun Yang, 2020. "Information diversity and innovation for born-globals," Asia Pacific Journal of Management, Springer, vol. 37(4), pages 1039-1060, December.
    3. Henrik Barth & Ghazal Zalkat, 2020. "Immigrant Entrepreneurship in Sweden: The Liability of Newness," Sustainability, MDPI, vol. 12(16), pages 1-18, August.
    4. Schmid, Stefan & Altfeld, Frederic & Dauth, Tobias, 2018. "Americanization as a driver of CEO pay in Europe: The moderating role of CEO power," Journal of World Business, Elsevier, vol. 53(4), pages 433-451.
    5. Lindner, Thomas & Puck, Jonas & Stocco, Giulia, 2023. "Asymmetric risk perception and firm financing in the institutional envelope," International Business Review, Elsevier, vol. 32(3).
    6. Ruijie Jin & Xu Jiang & Helen Wei Hu, 2023. "Internal and external CSR in China: How do women independent directors matter?," Asia Pacific Journal of Management, Springer, vol. 40(1), pages 169-204, March.
    7. Purkayastha, Anish & Kumar, Vikas, 2021. "Internationalization through foreign listing: A review and future research agenda," Journal of World Business, Elsevier, vol. 56(3).
    8. Adomako, Samuel & Amankwah-Amoah, Joseph & Tarba, Shlomo Y. & Khan, Zaheer, 2021. "Perceived corruption, business process digitization, and SMEs’ degree of internationalization in sub-Saharan Africa," Journal of Business Research, Elsevier, vol. 123(C), pages 196-207.
    9. Adams, Kweku & Attah-Boakye, Rexford & Yu, Honglan & Chu, Irene & Ishaque, Maria, 2023. "Competence and enterprise of management as drivers of early foreign listing of medium-sized emerging market multinationals (EMNEs) from Africa," Journal of Business Research, Elsevier, vol. 158(C).
    10. Areneke, Geofry & Kimani, Danson, 2019. "Value relevance of multinational directorship and cross-listing on MNEs national governance disclosure practices in Sub-Saharan Africa: Evidence from Nigeria," Journal of World Business, Elsevier, vol. 54(4), pages 285-306.
    11. Xu, Kai & Hitt, Michael A. & Brock, David & Pisano, Vincenzo & Huang, Lulu S.R., 2021. "Country institutional environments and international strategy: A review and analysis of the research," Journal of International Management, Elsevier, vol. 27(1).
    12. Tupper, Christina H. & Guldiken, Orhun & Benischke, Mirko, 2018. "Capital market liability of foreignness of IPO firms," Journal of World Business, Elsevier, vol. 53(4), pages 555-567.
    13. Jane W. Lu & Hao Ma & Xuanli Xie, 2022. "Foreignness research in international business: Major streams and future directions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(3), pages 449-480, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bell, R. Greg & Moore, Curt B. & Filatotchev, Igor, 2012. "Strategic and institutional effects on foreign IPO performance: Examining the impact of country of origin, corporate governance, and host country effects," Journal of Business Venturing, Elsevier, vol. 27(2), pages 197-216.
    2. Jing Zhang & Huizhi Yu, 2017. "Venture Capitalists’ Experience and Foreign IPOs: Evidence from China," Entrepreneurship Theory and Practice, , vol. 41(5), pages 677-707, September.
    3. Runhui Lin & Ya Li & Tao Peng & Hongjuan Zhang, 2017. "Venture capital reputation and portfolio firm performance in an emerging economy: The moderating effect of institutions," Asia Pacific Journal of Management, Springer, vol. 34(3), pages 699-723, September.
    4. Bai, Xiaoou & Tsang, Eric W.K. & Xia, Wei, 2020. "Domestic versus foreign listing: Does a CEO's educational experience matter?," Journal of Business Venturing, Elsevier, vol. 35(1).
    5. Gu, Yiwen (Jenny) & Filatotchev, Igor & Greg Bell, R. & Rasheed, Abdul A., 2019. "Liability of foreignness in capital markets: Institutional distance and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 57(C), pages 142-160.
    6. Tiziana La Rocca, 2021. "Do prestigious underwriters shape IPO pricing? A meta-analytic review," Review of Managerial Science, Springer, vol. 15(3), pages 573-609, April.
    7. Curt B. Moore & R. Greg Bell & Igor Filatotchev, 2010. "Institutions and Foreign IPO Firms: The Effects of “Home†and “Host†Country Institutions on Performance," Entrepreneurship Theory and Practice, , vol. 34(3), pages 469-490, May.
    8. Ning Jia, 2017. "Diversification of pre-IPO ownership and foreign IPO performance," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1031-1061, May.
    9. Hüttenbrink, Alexander & Oehmichen, Jana & Rapp, Marc Steffen & Wolff, Michael, 2014. "Pay-for-performance – Does one size fit all? A multi-country study of Europe and the United States," International Business Review, Elsevier, vol. 23(6), pages 1179-1192.
    10. Daniel Hain & Sofia Johan & Daojuan Wang, 2016. "Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust," Journal of Business Ethics, Springer, vol. 138(4), pages 743-764, November.
    11. Gupta, Deepika R. & Veliyath, Rajaram & George, Rejie, 2018. "Influence of national culture on IPO activity," Journal of Business Research, Elsevier, vol. 90(C), pages 226-246.
    12. Mike W. Peng & Sunny Li Sun & Lívia Markóczy, 2015. "Human Capital and CEO Compensation during Institutional Transitions," Journal of Management Studies, Wiley Blackwell, vol. 52(1), pages 117-147, January.
    13. Jane W. Lu & Hao Ma & Xuanli Xie, 2022. "Foreignness research in international business: Major streams and future directions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(3), pages 449-480, April.
    14. Michael Young & Terence Tsai & Xinran Wang & Shubo Liu & David Ahlstrom, 2014. "Strategy in emerging economies and the theory of the firm," Asia Pacific Journal of Management, Springer, vol. 31(2), pages 331-354, June.
    15. Del Bosco, Barbara & Misani, Nicola, 2016. "The effect of cross-listing on the environmental, social, and governance performance of firms," Journal of World Business, Elsevier, vol. 51(6), pages 977-990.
    16. Tupper, Christina H. & Guldiken, Orhun & Benischke, Mirko, 2018. "Capital market liability of foreignness of IPO firms," Journal of World Business, Elsevier, vol. 53(4), pages 555-567.
    17. Purkayastha, Anish & Kumar, Vikas, 2021. "Internationalization through foreign listing: A review and future research agenda," Journal of World Business, Elsevier, vol. 56(3).
    18. Igor Filatotchev & Gregory Jackson & Chizu Nakajima, 2013. "Corporate governance and national institutions: A review and emerging research agenda," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 965-986, December.
    19. Salim Chahine & Samer Saade & Marc Goergen, 2019. "Foreign Business Activities, Foreignness of the VC Syndicate, and IPO Value," Entrepreneurship Theory and Practice, , vol. 43(5), pages 947-973, September.
    20. Shu-Yuan Chen & Chih-Hsun Chuang & Shyh-jer Chen, 2018. "A conceptual review of human resource management research and practice in Taiwan with comparison to select economies in East Asia," Asia Pacific Journal of Management, Springer, vol. 35(1), pages 213-239, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:worbus:v:51:y:2016:i:5:p:787-799. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/620401/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.