Cross-border Mergers: The Role of International Competitiveness
PI: Protiti Dastidar, Assistant Professor, Department of International Business, GWSB
This project consists of two research papers addressing the following questions: (i) the impact of the institutional framework on cross-border acquisitions; and (ii) the cyclical patterns in and causes of cross-border acquisition activity. The PI investigates the characteristics that distinguish cross-border acquisitions from U.S. domestic ones, and examines how the macro-economic environment and market trends drive managers to take decisions that impact the international competitiveness of firms. Both research studies develop an interdisciplinary approach that draws from the international business, finance, and economics fields to develop testable hypotheses.
Alexander Sleptsov and Protiti Dastidar. Riding the Waves: Cross-border Acquisitions as a Quest for new Capabilities
Abstract: We argue that the cross-border acquisition activity is characterized by a cyclical pattern similar to the domestic merger waves. We consider several factors that can influence the cross-border merger waves, including the changes in the firms’ resource requirements following economic or regulatory shocks. The results of the tests on a large-scale archival dataset suggest that the motivations for cross-border and domestic waves may be different. In the cross-border waves, many acquirers are motivated by the search for new capabilities abroad; in the domestic waves, more acquirers are motivated by the desire to redeploy their existing capabilities.
Anju Seth and Protiti Dastidar. Motives for Domestic and Cross-border Acquisitions: A Comparative Analysis
Abstract: Studies examining value creation in cross-border acquisitions are few, and there are none that compare value creation of domestic vs. cross-border acquisitions. Institutional differences (at both the firm and industry level) may, in addition to economic factors, cause systematic differences in the value created by cross border vs. domestic acquisitions, thus affecting a firm’s international competitiveness. We seek to investigate the characteristic features that distinguish cross-border acquisitions from U.S. domestic acquisitions and how total gains are shared between the target and the acquirer. Our empirical results indicate that acquisitions are primarily driven by synergy motives though managerialism and hubris also coexist in the sample. Acquisitions by US acquirers of domestic as well as international targets are characterized by hubris rather than managerialism in our sample of negative total gains, while acquisitions by foreign acquirers of US targets are characterized by managerialism. We show that institutional characteristics matter and that target gains are lower for US acquirers of foreign targets in bank or group oriented countries, which is consistent with the evidence on lower valuations with lower protection of minority shareholder rights in these countries. For the foreign acquirer-US target sub-sample the institutional structure of the foreign acquirer’s home country appears to have no impact on target gains.
Motivating Diaspora Homeland Investment
PI: Tjai M. Nielsen, Assistant Professor, Department of Management, GWSB
Associate Professor, Department of International Business, GWSB
This research project examines the role of diasporas in homeland Foreign Direct Investment (FDI) by: (i) identifying diaspora-oriented trade and investment promotion programs and services offered by homeland governments; and (2) exploring diaspora-related psychological motivations for homeland investment interest and action. Some of the specific questions addressed here concern the extent to which diasporas are viewed as important in their country’s economic development, and how cultural similarities and business environment knowledge affect diaspora investment interest.
Tjai Nielsen and Liesl Riddle. Bridging Cultural Distance: A Multi-level Model of Diaspora Homeland Investment
Abstract: Little is known about why diaspora members invest in their homelands or why investment intensity varies among diaspora communities. Employing an interdisciplinary approach, we generate a multi-level, conceptual model of diaspora homeland investment. Our model examines the effects of inter-diaspora cultural differences, support from diaspora organizations, and three types of investment expectations-financial, social, and emotional-to better understand this phenomenon.
Tjai Nielsen and Liesl Riddle. (In Press) “Partnering to Beckon Them Home: Public-Sector Innovation for Diaspora Homeland Investment Promotion” Public Administration and Development Journal.
Abstract: This paper examines a little-studied component of public administration existing in most countries around the world and particularly important for developing countries: national investment promotion agencies (IPAs). Diasporas are an increasingly important and relatively untapped resource for development and many homeland governments view diaspora foreign investment as key to their economic development. In addition to being generally under-resourced, many IPAs struggle to identify ways to effectively target, cultivate, and facilitate diaspora homeland investment (DHI). To accomplish these goals, these public-sector entities are beginning to identify and leverage key partnerships in the NGO sector. This paper describes the services IPAs offer and enumerates the challenges they face associated with DHI. Drawing on three illustrations of IPA-NGO partnerships, the paper develops preliminary tools for identifying and designing partnerships for the purpose of promoting DHI based on their scope, function, and degree of formality.
Energy Security in a Market Era
PI: Robert J. Weiner, Professor, Department of International Business, GWSB
This project investigates the role of institutions in responding to oil shocks, as well as host-government/petroleum-MNE relationships. The PI analyzes the reasons behind the dramatic price spikes and the likely effects on oil exporters and importers, as well as on the international petroleum industry. The project has two components: (i) a workshop, aimed at policymakers, researchers, development practitioners, institutional investors, and industry people, to evaluate the state of knowledge in the area and discuss future directions; and (ii) research into political-risk aspects of energy security.
Reid Click and Robert Weiner. Does the Shadow of Risk Fall on Asset Prices?
Abstract: In the oil sector, emerging economies appear to be moving in the opposite direction from that assumed in the conventional wisdom on their integration into the world economy – as oil prices have soared, institutions such as regulatory stability, and contract sanctity and enforcement appear to be in decline, while political risk appears to be increasing. Does institutional deterioration harm the value of the very natural resources on which these countries depend? This paper investigates the effect of political risk on the value of real assets – here petroleum (crude oil and natural gas) reserves – associated with the country in which the reserves are located. We utilize a global transactions database of 1,655 mergers and acquisitions in which petroleum reserves were traded during the period 2000-2006. To capture the riskiness of the location, we consider the political risk rating calculated by International Country Risk Guide (ICRG) and the country risk rating published in Institutional Investor. Controlling for factors that affect reserve value, we demonstrate the value-destruction of political risk, and estimate the asset discount for 37 countries. Furthermore, contrary to the assumption in the scholarly literature, we show that the discount depends on market conditions – the higher the expected future market prices of oil and gas, the larger is the discount, regardless of a country’s riskiness. Our findings suggest that treating political risk and market risk separately is likely to yield inaccurate estimates of asset value. The results are salient for evaluating investment opportunities in industries where political risk depends on world markets.
Organizational Challenges for Businesses, PVOs and Developing Country Partners: Strategy of Bottom-Up Market Development, Scope of International Enterprises, and the Case of BRAC
PI: Stephen Smith, Professor, Department of Economics, CCAS
This project presents an in-depth analysis of the management and influence of BRAC, the world’s largest NGO and developing-country-based non-profit multinational enterprise. Strategies for escaping poverty traps and helping the ultrapoor reach the first step of the economic ladder are researched, and comparative case studies, as well as econometric research on household impacts with different program combinations, are examined. Uganda and Bangladesh are the two focal countries of this study.
M. Shahe Emran, Virginia Robano, and Stephen Smith. Assessing the Frontiers of Ultra-Poverty Reduction: Evidence from CFPR/TUP, an Innovative program in Bangladesh
Abstract: This paper uses household panel data to provide evidence on the effects of a pioneering anti-poverty program of BRAC in Bangladesh (called Challenging the Frontiers of Poverty Reduction/Targeting the Ultrapoor, or CFPR/TUP) that attempts to target the poorest of the poor. We focus on the effects of program participation on a set of household outcomes including food security, income, and asset accumulation. To construct appropriate treatment-control groups, we partition the sample using type 1 and type 2 assignment errors according to BRAC’s criteria for inclusion into and exclusion from the TUP program. We use a wide set of econometric approaches including the difference-in-difference matching estimator to identify and estimate the average treatment effect. To capture the potential heterogeneity of the treatment effect, we use a quantile difference in difference approach. The evidence shows that program participation had a significant positive effect on income, and food security of the ultra poor, but there is weak or no evidence in favor of a program impact on health related outcomes and ownership of homestead land. The quantile difference-in difference results show that the lowest two deciles get much less benefit from program participation compared with the two highest deciles among the ultrapoor.
Stephen Smith and Sumit Joshi. Endogenous Formation of Coops and Cooperative Leagues
Abstract: The labor-managed Mondragon cooperatives in the Basque country, and La Lega coops concentrated in North Central Italy, are grouped into leagues that enable them to reap economies of scale in key services such as R&D, marketing and finance. These leagues are relatively rare and there are fewer than a dozen of them globally. We develop a game-theoretic model of league formation to capture some of the strategic incentives behind the formation of labor-managed cooperatives (coops) and their agglomeration into a league.We then compare these incentives with those of conventional profit-maximizing firms to organize into a league. The main result of this paper shows that a divergence in these incentives stemming from their organizational differences may lead to the formation of a league of firms but not one of coops. This turns out to be true even though the coop has lower costs of production and the existence of a coop league would have been socially efficient. Anticipating the non-existence of a coop league then creates a disincentive for individual agents to form coops in the first place. This explains the relative rarity of coops, competing individually or as a part of a league, with conventional firms in imperfect markets.
The Public Policy Process and Business Political Strategies in Developing Nations
PI: Jorge Rivera, Associate Professor, Department of Strategic Management and Public Policy, GWSB
This project investigates business political strategies addressing governmental demands for increased corporate social/environmental responsibility in developing countries. The PI develops a framework which explains the underlying institutional logic determining business political strategies adopted during the different stages of the public policy process in developing countries. Additionally, several cases are identified and documented that illustrate how business political resistance to environmental/social responsibility and regulatory demands varies depending on the stage of the policy process and country contextual characteristics.
Jorge Rivera and Kalim Shah. Export processing zones and corporate environmental performance in emerging economies: The case of the oil, gas, and chemical sectors of Trinidad and Tobago
Abstract: Export processing zones (EPZs) are increasingly being established to promote economic growth in developing countries. However, they remain controversial and are often criticized for being associated with a ‘‘race to the bottom’’ characterized by the easing of labor and environmental standards. This paper investigates whether the decision to locate facilities inside these zones is associated with higher corporate environmental performance. Findings indicate that facilities operating in Trinidad and Tobago’s EPZs are more likely to show higher corporate environmental performance than those outside. Additionally, firms in state-managed zones appear to show higher corporate environmental performance than those located in privately managed zones. Enhanced institutional pressures from regulators, local communities, and fellow tenant firms may explain these differences. These results suggest that environmental policy makers and environmentalists can take advantage of already established EPZs to promote enclave enhanced institutional pressures associated with superior corporate environmental performance.
* See Also: Results Table Erratum
Jorge Rivera, Jennifer Oetzel, Peter deLeon, and Mark Starik. Business responses to environmental and social protection policies: toward a framework for analysis
Abstract: This conceptual paper seeks to advance neo-institutional work that has traditionally portrayed environmental and social protection policies as constraints followed by businesses. Drawing from the policy sciences literature, we propose that in the United States, businesses tend to show increasing resistance as the protective policy process moves from initiation to selection and growing cooperation thereafter. Most importantly, we also contribute to the neo-institutional theory literature by positing that this inverted U-shaped policy process–business response relationship proposed for the U.S. context may be moderated by variations in the level of democracy, system of interest representation, regulatory approach, and national income.
The Bloom of Regionalism: Implications for U.S. Multinational Firms
PI: Maggie Chen, Assistant Professor, Department of Economics, CCAS
The main objective of this project is to investigate and quantify the impact of regional trade agreements (RTAs) on U.S. multinational firms and Foreign Direct Investment (FDI). The PI examines the complexity of regionalism and the opportunities and challenges that it presents to U.S. Multinational Enterprises (MNE) as they consider optimal geographical locations in order to maximize the gains from regional economic integration. The project aims at generating publishable research papers, policy briefings, and a series of presentations and seminars, as well as serving as a foundation for International Trade course development.
Maggie Xiaoyang Chen. Regional Economic Integration and Geographic Concentration of U.S. Multinational Firms
Abstract: A volume of theoretical studies emphasizes that regional economic integration, by improving intra-bloc market accessibility, prompts multinationals to restructure their activities geographically within the bloc and improve the economies of scale. However, little has been done to test this prediction. This paper thus examines theoretically and empirically the divergent impact of economic integration on U.S. multinational firms affiliate sales across host countries. It is found that economic integration does lead to an increase in multinationals’ activities especially in countries that are integrated with a large size of markets, because the benefit of a lower trade cost is exclusive to insidefirms. However, this effect is significantly asymmetric both across and within the integrated regions, as multinationals are now motivated to serve the less attractive production locations via exports. In particular, countries with a comparative advantage gain multinationals at the expense of others, including their Preferential Trade Agreement (PTA) partners. Accounting for the potential issues of omitted variables and the endogeneity of PTA does not lead to any significant change in the results.
Does FDI Facilitate Domestic Entrepreneurship? Evidence from the Czech Republic
PI: Meghana Ayyagari, Assistant Professor, School of Business, Department of International Business
Renata Kosova, Assistant Professor, School of Business, Department of International Business
The project investigates the impact of foreign direct investment (FDI) on domestic firm formation and entrepreneurship in transition economies. More specifically, the study examines: (i) if FDI generates positive spillovers that stimulate domestic firms’ entry or if it creates barriers to entry; (ii) the nature of the possible spillovers (intra-industry vs. inter-industry); (iii) if the extent of these spillovers vary across countries; and (iv) if the presence of FDI affect the firm size distribution of domestic firms. The focus of the project is on the Czech Republic and encompasses data for an 8-year period and for 245 industries.
Meghana Ayyagari and Renáta Kosová. Does FDI Facilitate Domestic Entrepreneurship? Evidence from the Czech Republic
Abstract: This paper analyzes the impact of FDI on domestic firm entry and firm size distributions in 245 industries in the Czech Republic during 1994 to 2000. We find that larger foreign presence stimulates the entry of domestic firms within the same industry indicating the existence of positive horizontal spillovers from FDI. We also find evidence of significant vertical entry spillovers – FDI in downstream (upstream) industries initiates entry in upstream (downstream) sectors via the presence of backward (forward) linkages. Our results also show that entry spillovers through vertical linkages are stronger than horizontal spillovers. However, these entry spillovers vary substantially across industries: while service industries benefit from both horizontal and vertical spillovers, manufacturing industries do not experience significant positive entry spillovers of any kind. In addition, while vertical spillovers prevail among competitive industries, horizontal spillovers dominate in less competitive industries. We also find that country of origin of FDI matters – horizontal spillovers are driven by FDI from the EU countries. The right skewness of the firm size distributions in industries without FDI further emphasizes an important role of FDI presence for overall industry dynamics.
The Security Behavior of International Business and NGOs
PI: Deborah Avant, Associate Professor, Department of Political Science, CCAS
This project examines how non-state actors, such as businesses and NGOs, respond to new security threats, and how these actors’ risk-management activities impact the surrounding communities and the relationships between their home and host government and societies. The study’s main contribution is twofold in that it (i) analyses both corporate and NGO behavior, and (ii) relies on a variety of not usually combined sources of information on comparative security behavior. The final outcome of the research provides both theoretical and practical benefits and encompasses (i) a conceptual paper that develops a framework of analysis for non-state actors and security planning, (ii) a database of corporate and NGO response to security, conflict, and crisis management issues over times and territory, and (iii) a book, series of articles, and policy papers utilizing the database to answer theoretical and policy questions.
Deborah Avant. Organizational Security in Areas of Weak Governance.
Abstract: Transnational non-state actors, both corporations and non-profit groups, increasingly confront security challenges in unstable territories around the world. Existing work on how these actors behave in conflict zones demonstrates that their responses have significant political effects, but does not provide a framework for understanding of their role as security actors. We outline a new research agenda that examines the security strategies of transnational non-state actors and their consequences for violence and governance. We outline the array of options transnational organizations choose from and then a set of questions that need to be answered in order to understand why they make different choices, and the ways in which their choices impact their organization’s effectiveness as well as violence and governance in unstable territories.
The Implications of Union Political Ties for Economic Development
PI: Emmanuel Teitelbaum, Assistant Professor, Department of Political Science, CCAS
This project examines the economic effects of union political ties in developing countries by testing the hypothesis that major political parties restrain and institutionalize protest. For this purpose, the PI compiles three original cross-national datasets, which help (i) determine how the political structure of the labor movement affects worker protest, (ii) the ability of the working-class to influence legislative outcomes, and (iii) the impact of labor protest and working-class political mobilization on economic performance.
Emmanuel Tietelbaum. Globalization, Regime Type and Labor Protest in Developing Countries
Abstract: How can states best manage the social dislocations associated with rapid economic development and greater exposure to market forces? In this paper, we explore the relationship between foreign direct investment (FDI), regime type and strikes in low-and middle-income countries. We argue that FDI produces social tensions and a higher demand for labor that can result in higher levels of industrial conflict. However, the effect of FDI is moderated by regime type. While democracies tend to have higher levels of protest overall, they are better able to cope with the strains arising from FDI because conflict can be channeled through state institutions or union-party ties. More institutionalized authoritarian regimes or hybrid regimes also perform better than other kinds of authoritarian regimes. We test the argument using a new dataset of labor protest in low- and middle-income countries for the period 1980-2005.
Enduring Industries-Foster Economics Development by Safeguarding Human Capital
PI: Tenagne Haile-Mariam, Assistant Professor, School of Medicine and Health Services
This project, undertaken in the form of a conference, addresses the problem of brain drain of health care professionals coming from emerging and developing countries, and the impact that this loss of human capital has on the economic development of these nations. Focusing on Ethiopia, the venue examines strategies developed by businesses that have successfully recruited and retained local talent, and seeks ways to apply these strategies to the healthcare sector. Invited business leaders and healthcare policy makers collaborate on building healthcare models that can sustain economic growth. Healthcare models created by other countries are analyzed for possible application to Ethiopia.
Diasporas and Institution-Building in War-torn Societies: International Collaboration in Assessing the Methodological State of the Art
PI: Stephen Lubkemann, Assistant Professor, Department of Anthropology, CCAS
This project aims at convening a symposium of 15-20 leading researchers in order to share key methodological insights about displacement diaspora research. This group will: 1) be inter-disciplinary; and 2) have established records of fieldwork in/with displacement diasporas. In partnership with Oxford University and Tufts University, this conference will: 1) produce a landmark methodological volume to be published as a book or as a special peer-review journal edition; 2) consolidate GWU’s emerging international profile in contemporary diaspora research; 3) develop GWU’s working relationship with three key international centers in this field (COMPAS-Oxford, Danish Institute for International Studies, Tufts); 4) take steps to create an international network of diaspora research centers based on research collaboration and annual workshops; 5) enhance GWU’s standing with major donors interested in supporting “diasporas in war-torn societies” research; and 6) establish a stronger US institutional presence in an important domain of development and international security policy research.
Transnational Washington: Diasporic Institutions and Networks of the 21st Century Global Gateway
PI: Marie Price, Professor, Department of Geography, CCAS
Elizabeth Chacko, Associate Professor, Department of Geography, CCAS
The research project traces the transnational linkages and institutions that tie Washington, D.C. to numerous sending communities and their impacts on development. The project’s focus is on seven of the largest country-of-origin diaspora groups in the region (Afghans, Bolivians, Ethiopians, Indians, Koreans, Salvadorans, and Vietnamese), and it elaborates on the diversity of transnational actors which have converged upon a relatively new urban immigrant destination. The study’s objective is to demonstrate the complementary and competing strategies of diverse immigrant streams and organizations while providing the unifying context of one urban space – Greater Washington. Another potential of the project is to theoretically advance our understanding of how immigrant transnational networks in global cities create new institutions that promote development.
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