A Study Of The Relationship Between Top Management Team Social Capital And Firm Internationalization

Internationalization strategy is described as the cross-border expansion of business activities, which includes the expansion of business in terms of sales, manufacturing and R&D into different geographical regions or overseas markets (Hitt,et al.,2006). With the reform and open-door policy as well as the rapid economic development, the competitiveness of Chinese firms has gradually improved. More and more firms have the requirements and capabilities to carry out internationalization strategy and expand international market. Hitt holds that internationalization is a key strategy for large-scale firms(Hitt,Hoskisson & Ireland,1994). The implementation of internationalization can bring forth growth opportunities, achieve economy of scope and economy of scale and promote knowledge accumulation and learning for firms. In the process of internationalization, fundamental changes will take place not only in corporate strategy, but also in the essence and boundary of the competitive advantages (Porter,1985; Prahalad & Hamel,1994). In the context of globalization, it is unavoidable for any firm to experience the stage of internationalization and make such strategic selection. Especially for Chinese firms in the stage of transition economy, international strategy is an inevitable strategic choice.Comprehensive researches have been carried on into the Board of Directors, TMT and internationalization based on Upper Echelons theory and Agency Theory respectively in a majority of literatures, and discussions have even been made by some scholars with these two theories (Wu Jianfeng, Hu Xiaomin,2010). However, there hasn’t been an adequate integration of the above two theories so as to discuss the impact of the relationship between the Board of Directors and TMT on the firm internationalization, which may, to a certain extent, affect the interpretation of the "black box" of enterprise internal governance mechanism. Due to the fact that the utility functions of the Board of Directors and TMT are not completely consistent, there inevitably exist asymmetric information and opportunism behavior tendency in the framework of principal-agent. Therefore, the Board of Directors and TMT may not necessarily agree on the strategic decisions and practices. Especially after integrating Upper Echelons theory into the principal-agent framework, it can be found out that the various demographic differences between the Board of Directors and TMT, and thus-caused possible unbalanced distribution of power between the two parties on the governance mechanism will definitely have more obvious impact on the firms’ internationalization strategy. In other words, the moderating effect of the managerial power of TMT on the relationship between TMT social capital and firm internationalization is the focus of the present study. In this thesis, Upper Echelons theory and Agency Theory will be simultaneously introduced to conduct an in-depth discussion of the internal decision-making process of firm internalization with an attempt to find out the moderating effect of the interactive relationship between the Board of Directors and TMT on the relationship between TMT social capital and firm internationalization.Managerial power will be adopted as an analysis tool (Bebchuk & Fried,2003). In view of the respective demographic characteristics of the Board of Directors and TMT and their power distribution in the company governance structure, the very demographic differences between the two parties are identified as managerial power. Namely, the party with an advantageous demographic characteristics can be speculated to have greater managerial power, and thus has more say in the decision-making of whether the firm should adopt internationalization strategy. In combination with the previous research conclusions and upper echelons theory, three combination modes of the Board of Directors and TMT are established here based on the main factors affecting managerial power distribution:term, scale, proportion of independent directors(outside directors),the duality of two roles. The three combination modes are as follows:strong TMT managerial power (combination of strong board of directors-weak TMT (Case I); weak TMT managerial power (combination of weak board of directors-strong TMT (Case II); balanced managerial power (Case III, Case IV). A respective discussion of the three Cases is made to clarify the specific mechanism.The thesis argues that the above-mentioned three combinations are widespread in the firms’practice and it’s likely to exhibit a dynamic change. Namely, with time passing, the respective power of the Board of Directors and TMT and their relative position in the corporate governance structure are likely to shift. There exists a possible changing trend from one combination to another. It should be pointed out that, however, this trend will not necessarily represent only in one fashion, which suggests that it’s unable to be estimated in advance. Given the limited space available, this thesis makes no attempt to analyze the dynamic changes of various combinations and their effects on the firm internationalization. However, static analyses are made of the inner motivations and consequences of internationalization in each combination.The thesis consists of seven chapters. Chapter I is the Introduction, which incorporates the significance of the topic selection, the research content, the research methods as well as the technical route, and innovative perspectives are also pointed out. Chapter II is the literature review, which makes a comprehensive account of the previous research into the field of TMT features, social capital and firm internationalization. Chapter III is theoretical foundation and clarification of constructs, which first introduces the three important theories adopted in the present research, and they are Upper Echelons theory, the theories of corporate governance and corporate social capital theory. Meanwhile the most important constructs managerial power and TMT social capital are defined and expounded in great detail and the relationship between TMT background features and TMT social capital is analyzed. Therefore, a theoretical basis is laid for the research model and assumptions to be made. Chapter IV makes a two-layer analysis. The relationship between TMT social capital and firm internationalization is first touched, and then, from the perspective of the power conflict between the Board of Directors and TMT, the moderating effect of managerial power on such relationship is emphasized. Based on those analyses, research model is formulated and research assumptions are made. Chapter V introduces the research design and makes a detailed account of how data are collected and processed. More importantly, a clear description is made of the definition and measurement of key variables. Chapter VI makes an empirical investigation of the above logic based on a large sample:data of China’s listed companies in 2008-2012. An in-depth analysis and discussion is made of such empirical study. Chapter VII puts forward the findings and conclusions of this research and points out its great significance in management practice.At the very end the limitations of the present study and prospects for future study are also presented.