CEO characteristics, multinationality and downside risk: evidence from Chinese multinational corporations
ISSN: 1525-383X
Article publication date: 5 October 2022
Issue publication date: 20 March 2023
Abstract
Purpose
Real options theory posits that multinationality provides additional operating flexibility and helps firms reduce downside risk. This study aims to explore the effects of chief executive officer (CEO) characteristics on the downside risk implication of multinationality in Chinese multinational corporations (MNCs).
Design/methodology/approach
This study gathers a sample of Chinese MNCs from 2009 to 2020 and deploys a Tobit panel estimation model with fixed effects in the empirical analysis.
Findings
This study finds that multinationality has a significant negative effect on downside risk. The downside risk reduction effect of multinationality is stronger in firms led by older CEOs, women CEOs, CEOs with overseas experience or broader functional backgrounds or those with higher educational levels. Additionally, the above effects of CEO characteristics on the downside risk reduction effect of multinationality are more pronounced in firms with smaller top management team (TMT) sizes. Hence, the findings show that the multinational network constructed by Chinese MNCs could offer great operating flexibility, and CEO characteristics and the CEO–TMT interface play an important role in achieving real options flexibility from multinationality.
Originality/value
This study shows that multinationality could be an effective way for emerging market firms to reduce business risk. This study helps identify CEO characteristics that are associated with real option performance and emphasizes that CEO personal attitudes and abilities could influence the real options flexibility obtained from multinationality. This study also contributes to the understanding of micro foundations in international business by focusing on the role of CEO characteristics and the CEO–TMT interface in the downside risk implications of multinationality.
Keywords
Acknowledgements
This work was supported by the National Natural Science Foundation of China (Grant numbers [72102075]); the Humanity and Social Science Youth foundation of Chinese Ministry of Education (Grant numbers [20YJC790190]); Guangdong Planning Office of Philosophy and Social Science (Grant numbers [GD19YYJ10]); Guangdong Provincial Natural Science Foundation (Grant numbers [2019A1515010919]; [2019A1515110939]); Guangdong Provincial Finance Special Fund Project “Research on Inclusive Finance and Rural Economy” (Grant numbers [GDZXZJSCAU202054]).
Citation
Zhou, C. (2023), "CEO characteristics, multinationality and downside risk: evidence from Chinese multinational corporations", Multinational Business Review, Vol. 31 No. 1, pp. 111-135. https://doi.org/10.1108/MBR-01-2022-0007
Publisher
:Emerald Publishing Limited
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