Jordan I. Siegel

Contingent Political Capital and International Alliances: Evidence from South Korea

Though prior research has suggested that a companys ties to political networks have only a positive value or no value, this study examines whether political network ties can also be a significant liability for companies. Analyzing South Korea as a representative emerging economy, I find that being tied through elite sociopolitical networks to the regime in power significantly increased the rate at which South Korean companies formed cross-border strategic alliances, but also that being tied through elite sociopolitical networks to the political enemies of the regime in power significantly decreased that rate. Results show that an unexpected change in political regime could quickly change a political liability into an asset and that network ties continued to be important determinants of cross-border alliance activity as South Korea proceeded with liberalization. The present study sheds further light on the so-called dark side of embeddedness by focusing on who is negatively targeted by having the “wrong friends” at the wrong time. Just as positive ties can lead to favor exchange and other benefits for companies, negative ties can lead companies to be the victims of discrimination, resource exclusion, and even occasional expropriation and sabotage between rival sociopolitical networks.

Egalitarianism, Cultural Distance, and Foreign Direct Investment: A New Approach

This study addresses an apparent impasse in the research on organizations’ responses to cultural distance. We posit that cross-country differences in egalitarianism—a cultural orientation manifested in intolerance for abuses of market and political power and support for protection of less powerful actors—affect multinational firms’ choices of destinations for foreign direct investment FDI. Using historically motivated instrumental variables, we observe that egalitarianism distance has a negative causal impact on FDI flows. This effect is robust to a broad set of competing accounts, including the effects of other cultural dimensions, various features of the prevailing legal and regulatory regimes, other features of the institutional environment, economic development, and time-invariant unobserved characteristics of origin and host countries. We further show that egalitarianism correlates in a conceptually compatible way with an array of organizational practices pertinent to firms’ interactions with nonfinancial stakeholders, such that national differences in these egalitarianism-related features may affect firms’ international expansion decisions.

Egalitarianism, Cultural Distance, and FDI: A New Approach

This study addresses an apparent impasse in the research on organizations’ responses to cultural distance. We posit that cross-country differences in egalitarianism — a cultural orientation manifested in intolerance for abuses of market and political power and support for protection of less powerful actors — affect multinational firms’ choices of destinations for foreign direct investment (FDI). Using historically motivated instrumental variables, we observe that egalitarianism distance has a negative causal impact on FDI flows. This effect is robust to a broad set of competing accounts, including the effects of other cultural dimensions, various features of the prevailing legal and regulatory regimes, other features of the institutional environment, economic development, and time-invariant unobserved characteristics of origin and host countries. We further show that egalitarianism correlates in a conceptually compatible way with an array of organizational practices pertinent to firms’ interactions with non-financial stakeholders, such that national differences in these egalitarianism-related features may affect firms’ international expansion decisions.

Multinational Firms, Labor Market Discrimination, and the Capture of Competitive Advantage by Exploiting the Social Divide

The organizational theory of the multinational firm holds that foreignness is a liability, and specifically that lack of embeddedness in host-country social networks is a source of competitive disadvantage; meanwhile the literature on labor market discrimination suggests that exploiting the bigotry of others can be a source of competitive advantage. We seek to turn the former literature somewhat on its head by building on insights from the latter. Specifically, we argue that multinationals wield a particularly significant competitive weapon: as outsiders, they can identify social schisms in host labor markets and exploit them for their own competitive advantage. Using two unique data sets from South Korea, we show that in the 2000s multinationals have derived significant advantage in the form of improved profitability by aggressively hiring an excluded group, women, in the local managerial labor market. Our results are economically meaningful, realistic in size, and robust to the inclusion of firm fixed effects. Multinationals, even those whose home markets discriminate against women, often show signs of having seen the strategic opportunity. Though the host market is moving toward a new equilibrium freer of discrimination, that movement is relatively slow, presenting a multiyear competitive opportunity for multinationals.

What Makes the Bonding Stick? A Natural Experiment Involving the U.S. Supreme Court and Cross-Listed Firms

On March 29, 2010, the U.S. Supreme Court signaled its intention to geographically limit the reach of the U.S. securities antifraud regime and thus differentially exclude U.S.-listed foreign firms from the ambit of formal U.S. antifraud enforcement. We use this legal surprise as a natural experiment to test the legal bonding hypothesis. This event nonetheless was met with positive or indifferent market reactions based on matched samples, Brown-Warner, and portfolio analyses. These results challenge the value of at least the U.S. civil liability regime, as currently designed, as a legal bonding mechanism in such firms.

Which Does More to Determine the Quality of Corporate Governance in Emerging Economies, Firms or Countries?

Scholars of corporate governance have debated the relative importance of country and firm characteristics in understanding corporate governance variation across emerging economies. Using panel data and a number of model specifications, we shed new light on this debate. We find that firm characteristics are as important as and often meaningfully more important than country characteristics in explaining governance ratings variance. These results suggest that over recent years firms in emerging economies had more capability to rise above home-country peer firms in corporate governance ratings than has been previously suggested. In fact, 16.8% percent of firms in emerging economies have been able to exceed the 75th percentile of corporate governance ratings in developed economies and 45.5% of firms in emerging economies have been able to exceed the 50th percentile of corporate governance ratings in developed economies.

What Makes the Bonding Stick? A Natural Experiment Testing the Legal Bonding Hypothesis

We use a US Supreme Court case, Morrison v. National Australia Bank (2010), as a natural experiment to test the legal bonding hypothesis. By decreasing the potential liability of US-listed foreign firms, particularly due to class action lawsuits, Morrison arguably eroded their legal bonding to compliance with disclosure duties. Nevertheless, we find evidence of an increase or insignificant change in share values. Tests of longer-run effects of the legal event indicate that foreign firms’ disclosure quality and likelihood of facing enforcement actions remained stable, as did investors’ revealed preferences for trading on US markets. These results go against the legal bonding hypothesis but are consistent with reputational bonding and with market-based accounts of US cross-listing. Our results may contribute to ongoing debate about civil enforcement of securities laws through class actions.