Experience and FDI risk-taking: A microfoundational reconceptualization

• Main Authors: BUCKLEY, Peter J., CHEN, Liang, CLEGG, L. Jeremy, VOSS, Hinrich
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2016
• Subjects: Country risk; Risk propensity; Microfoundations; Behavioral decision-making; Experience; Finance and Financial Management; International Business; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7292; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8291/viewcontent/Experience_FDI_Risk_taking_av.pdf
• Institution: Singapore Management University

Studies of how firms respond to host country risk have assigned explanatory primacy to organizational capability and managerial risk preference. The organization-level account is built on the premise that capability is a prerequisite for risk-taking while the individual-level account focuses on the managers' intrinsic behavioral attitude. Without integrating one with the other, the former is open to many alternative explanations while the latter remains only a source of heterogeneity. We propose that employing the microfoundations approach can address the limitations of each account and yield a fuller understanding of FDI risk-taking. Drawing upon behavioral decision theory and the concept of risk propensity, we describe the lower-level mechanisms that generate the empirical regularity between firm experience and risk-taking, which has been attributed to the macro-level capabilities paradigm. We finalize the framework with an account as to how individual-level mechanisms can be incorporated into the context of organizational strategic decision-making.