Elena Kulchina

Personal Preferences, Entrepreneurs’ Location Choices, and Firm Performance

Whereas early location work established the role of economic factors in entrepreneurs’ location choices, recent studies suggest personal reasons as another factor. However, because the places where entrepreneurs want to live are often the places where they will likely do well, it is difficult to empirically separate the two mechanisms. We focus on entrepreneurs founding firms abroad, allowing us to more effectively isolate the effect of personal location attractiveness. We leverage entrepreneurs’ decisions to relocate and manage their firms personally or to remain in a home country and hire a manager. We find that entrepreneurs who view a host country as an attractive location are more likely to relocate and manage their firms personally. However, such entrepreneur-managers have lower firm performance. These results are consistent with the idea that entrepreneurs are more likely to reside in personally attractive places and are willing to substitute benefits of living there for some firm profit. This pape...

Do Foreign Entrepreneurs Benefit Their Firms as Managers

The entrepreneurship literature has extensively studied an individual’s decision to found a new venture, but it has little to say about the individual’s choice to operate this venture personally or hire an agent. This decision is particularly challenging for foreign entrepreneurs, who, in addition to traditional factors, such as agency costs and personal preferences, need to take into consideration the benefits and liabilities of foreignness. Using novel data on foreign entrepreneurial firms and instrumenting for the owner-manager choice with a visa policy change, we find that managing foreign entrepreneurs significantly improve firm performance. Our results further suggest that foreign owner-managers reduce operating costs but have no effect on the firm’s productivity and growth.

Immigrants and Firm Performance: Effects on Foreign Subsidiaries versus Foreign Entrepreneurial Firms

Studies have demonstrated that foreign firms locate where immigrants from their home countries reside and suggested that doing so can improve performance. We argue that, to properly assess how immigrants impact the performance of co-national firms, research must account for heterogeneity in how independent foreign entrants (owned by individual foreigners) versus MNC subsidiaries (owned by a foreign corporate parent) benefit from immigrant communities. Independent entrants have a greater need for resources from the immigrant community and depend more on their individual managers’ personal connections within the community to obtain such resources. Subsidiaries of MNCs can instead rely on the impersonal organizational resources of their parent firm (e.g. brand, reputation, channels) to access valuable immigrant community resources. Using data on foreign firms in Russia during 2006-2011, we find that immigrants improve the profitability of co-national independent firms only if they are managed by immigrant CEOs, whereas co-national MNC subsidiaries profit from immigrants regardless of their CEO’s nationality. Our study suggests that while organizations benefit from the resources of co-national immigrant communities in foreign markets, the means by which they activate them—personal or impersonal—systematically vary across different types of firms.Prior studies have demonstrated that foreign firms co-locate with immigrants from their home countries, but whether this improves profitability is unclear. We demonstrate that co-national immigrant communities positively affect the performance of foreign firms, and that this effect depends on the type of firm (entrepreneurial venture or MNC subsidiary) and manager (foreign versus local). We found that without an immigrant community, a foreign CEO has a negative effect on the performance of foreign entrepreneurial firms. However, this effect becomes positive as the size of the immigrant community increases because entrepreneurial firms with foreign managers benefit more from their co-national communities than similar firms with local managers. Conversely, MNC subsidiaries derive equal benefits from co-locating with immigrants regardless of their CEO’s nationality. This is consistent with our expectation that entrepreneurial firms rely more on local communities than subsidiaries and that CEOs’ social networks allow entrepreneurial firms to relate to these communities.

How Effective are Relational Incentive Contracts? Evidence from Entrepreneurial Firms in Russia

We examine the managerial delegation decisions of foreign entrepreneurs, and assess how these decisions are shaped by characteristics of the local product and labor market environment. We argue that actual or perceived home bias in court proceedings leads foreign entrepreneurs to place little reliance on formal contracts in their dealings with local agent managers. Adopting the lens of relational contract theory, we develop hypotheses linking managerial delegation decisions to market conditions associated with stable self-enforcing agreements, and test the hypotheses in the context of post-Soviet Russia. Consistent with our arguments we find that foreign entrepreneurs are more likely to hire an agent manager in local markets where industry growth creates a substantial ‘shadow of the future,’ where managers’ outside employment options are relatively limited, and where competition and the variability of returns are not so high as to induce defection from an informal agreement. Similar observations on a sample of Russian-owned entrepreneurial firms suggest that these delegation decisions are relatively insensitive to local market conditions, but are influenced by the density of local reputation networks. Our study thus contributes to understanding of the distinctive features of foreign entrepreneurs’ managerial delegation decisions, and reinforces the view that contracting impediments constitute one important aspect of the ‘liability of foreignness’ for entrepreneurial firms.