role of top management on international diversification

8/3/2019 Role of Top Management on International Diversification

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A

PROJECT REPORT

ON

ROLE OF TOP MANAGEMENT

ON INTERNATIONAL DIVERSIFICATION

Submitted to: Submitted by:

ArpitaAgnihotri Aditi Sharma

BhavpreetSinghal

GauriIndurkar

KunalGupte

SulabhTekriwal

Page | 1Role of Top Management in International Diversification


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TABLE OF CONTENT

TOPIC

PAGE NO.

1. INTRODUCTION 3

2. LITERATURE REVIEW

5

3. METHODOLOGY22

4. PANEL REGRESSION OUTPUT SHEET

22

5. REGRESSION EQUATION

26

6. CONCLUSION26

7. APPENDIX-I

27

8. REFERENCES

34

9. BIBLIOGRAPHY36



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INTRODUCTION

Top management plays an important role in deciding the growth of any organization. Top

management team (TMT) decide where to invest, when to invest, how to invest, how much to

invest.

The highest rankingexecutives (with titles such as chairman/chairwoman, chief executive

officer, managing director, president, executive directors, executive vice-presidents, etc.) are the

top management responsible for the entire enterprise. Top management translates thepolicy of

the firm into goals,objectives, and strategies, andprojects a shared-vision of the future. It makes

decisions that affect everyone in the organization, and are help entirely responsible for

the success orfailure of the enterprise.

The key to successful international expansion and long-term growth are decisions made at the

top management level. The ideal combination of speed, dispersion and regularity in the

internationalization process is determined by the information-processing capabilities at corporate

headquarters. As the central decision-making unit at corporate headquarters, the top management

team is faced with increasingly complex decisions as the company expands its presence abroad

through its foreign subsidiaries. This complexity requires a corresponding degree of information

processing capacity at the top management team level, requiring the top management team to

possess certain traits and capabilities in order to effectively manage the expansion of foreign

operations.

There is increasing research effort in management literature dedicated to better understanding the

role and impact of demographics of top management teams on firm strategies.

International diversification is an attempt to reduce risk by investing in more than one

nation. By diversifying across nations whose economic cycles are not perfectly correlated,investors can typically reduce the variability of their returns. The issue of the value impact of

corporate diversification has been the focus of significant research attention over the past decade.

The vast majority of this research has focused on the issue of cross-industry investments. Given

this attention, one might believe that industrial diversification is quite common among US firms.

This turns out not to be the case, as the more common corporate diversification investment

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strategy of US firms is to invest internationally, outside of the domestic market. In the late

1990s, the percentage of US firms with cross-border investments was nearly three times the

percentage of firms with cross-industry investments. While there is a wealth of well developed

economic arguments suggesting that internationally diversifying investments can have important

value impacts on firms, the measurement of such impacts has received little attention. In

contrast to the long list of studies on the value impact of industrial diversification, there is

limited work and mixed results on the value implications of international diversification.

Nationality diversity and international experience constitute two distinct sources of competence

among upper echelons. While both TMT international experience and nationality diversity

increases the likelihood of firms expanding outside their home region, our results show that

TMTs with international experience are more likely to expand abroad via Greenfield

investments, whereas nationally diverse TMTs are more likely to engage in international

acquisitions and joint ventures. This highlights the need to treat TMT nationality diversity and

international experience as two different characteristics influencing foreign entry mode decision.

Linking international diversification to company performance suggests that prior performance

may be an important driver to diversifying internationally. In order to establish this link, the

international diversification-performance relationship has been tested in this study, controlling

for other factors such as company age, market performance, organisational life cycle, level of

organisational slack, and industry of participation. These factors are a mix of push and pull

factors for international diversification.The results show that in general, international

diversification has a positive relationship with performance, except in the case of regional

international diversification. One would expect that companies that diversify internationally can

reap economies of scale and scope as well as ownership advantages by operating in another

location. However, expanding regionally does

not necessarily lead to better performance. While ownership advantages and the proximity ofregional markets may generate greater profitability, it is possible that the smaller markets in

Australasia allow limited economies of scale and scope and thus in fact limit profit potential.

The prior performance of a company is a key determinant of international diversification, except

in the case of regional international diversification. Specifically, in the case of nonregional

diversification, prior performance has an invertedU relationship with international



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diversification. That is, the extent of international diversification increases as prior performance

increases. However, beyond a threshold level of prior performance, the extent of international

diversification actuallydecreases or tapers off. This result is similar to the effect on the difference

between nonregional and regional international diversification.

LITERATURE REVIEW

FOREIGN EXPERIENCE OF TOP MANAGEMENT TEAMS AND INTERNATIONAL

DIVERSIFICATIONSTRATEGIES OF U.S. MULTINATIONAL CORPORATIONS

-RAKESH B.

SAMBHARYA

School of Business, Rutgers University-Camden, Camden, New Jersey, U.S.A. FOREIGN

Introduction:

Top management plays an important entity in deciding the growth of any organization. Top

management team (TMT)decide where to invest, when to invest, how to invest, how much to

invest. Here Mr. Rakesh B. Sambharya want to identify that whether international exposure of

TMT of US multinational corporation is associated with their international diversificationstrategies or not. It an quantitative analysis showing which all independent factors affect more.

Literature Review usedby Rakesh B. Sambharya is:

He identified three studies showing a relationship between the TMT and international

diversification of an organization. Norburn (1987) compared TMT of U.S.A with UK and found

a drastic difference among the two. British top management teams in terms of corporate

experiences, education, and self concept with regards to aspiration and executive traits.

Sambharya identified traits of 53 American MNCs and found that diversity, age, tenure of plays

an important role in determining international diversification capacity of the firm.

Here they consider demographic variables such as age, tenure of work, functional background,

and education. Not every executive have international exposure.

Hypothesis 1a: the mean number of years of international experience of the top management

team will be positively related to the amount of international diversification in an MNC.



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Hypothesis 1b: a higher portion of managers with international experience in the top

management team will be positively related to the amount of international diversification in an

MNC.

Hypothesis 1c: the heterogeneity of international experience of the top management team in an

MNC will be positively related to the amount of international diversification.

Methodology

Research is based on two assumptions:

At least 10% oftotal sales are from foreign operations

A company is considered to be MNCs and taken into consideration only when it have

operations in more than six countries.

Sample size: 54

Variables

Study focuses only on MNCs, whichhave tangible foreign assets and foreign sales. International

diversification is measured in term of percentage of foreign sales to total sales (%FORSALES)

and percentage of foreign assets to total assets (%FORASSETS).

Independent Variables are INTEXPMdenotesthe mean number of years of internationalexperience, INTHOMO refers to homogeneity of international experience, PINT# refers to

the percentage of top managers having international exposure, and Sales served as a control for

size of the company in this study and was normalized by taking logarithmic value (LOGSIZE).

Results

All the three models (INTEXPM, INTHOMO, PINT#) are significant and accounted for 21, 28,

and 18 percentage of the variability in %FORSALES. The result of regression on%FORASSETS on INTEXPM, INTHOMO, PINT# indicated that they are marginally significant

and accounted for a variance of 13 and 12 percentage respectively. Thus hypothesis 1a and

1cwere upheld but Hypothesis 1b received only partial support. The top management teamof MNCs influences so foreign markets to some extent foreign direct investment.

Source:

Strategic Management Journal, vol. 17, 739-746 (1996)



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Literature Review 2

Top management Team International Dominant Logic: A New Linkage in the

International Diversification- Performance Link

-Douglas E. Thomas

Introduction

Top management is akey part of any organization. They thought that the firm itself is to a large

degree a reflection of the top management team. Some researcher found that their is an inverted

U relationship between the international diversification and performance

Objective:

To propose anew construct to the strategic management literature that affects the

relationship between the international diversification and TMT.

To explore the antecedent of the TMTs international dominant logic

To argue that the TMTs international dominant logic is a crucial link in the relationship

between a firms international diversification strategy and its performance.

Methodology:

Its a qualitative research, wherein Mr. Douglas E. Thomas come to a conclusion based on their

subjectivity. Some of the used by Mr. are they used paper are Norburn (1987), Rakesh B

Sambharya, etc.

Results

More diverse top management team provides more information as well as better information to

the firms decision making processes. Diversity can be based in much aspect of individuals such

as education, experience, tenure in the firm, gender, and ethnicity. Conversely, firms that have

higher levels of international diversification but lower levels of TMT diversity experience lower

levels of performance. Further, the results of the other recent research indicate that firms that

invest overseas often experience initially higher performance and then face challenges which

lead to lower performance.



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Literature Review 3

Composition of the Top Management Team and Firm International Diversification

Source: Journal of Management

Objective: The purpose of this study is to understand the Impact of the Composition of the Top

management teams on Firm International Diversificiation.

This study is inspired by the increasing research effort in management literature dedicated to

better understanding the role and impact of demographics of top management teams on firm

strategies.

Variables taken:

Dependent variable: Multidimensional measure of international diversification: Foreign sales

divided by total sales (FSTS). FSTS data was taken from Electronics Business 200 annual

survey.

Independent variables: Demographic variables like Age, tenure, education, functional

background, international experience and heterogeneity of top management teams in one

industry

Control Variables: Prior experience of firm (ROA over time span 1983-1985), firm size

(number of organizational employees in 1985) and top management team size.

Hypotheses:

HI: Higher average age of top management negatively related to degree of firms international

diversification

H2: Higher average tenure of top management positively related to the degree of the firms

international diversification

H3: Positive association between average level of elite education of top management and degree

of the firms international diversification

H4: Positive association between average level of international experience of top management

and degree of the firms international diversification

H5a: Positive association between age heterogeneity of top management and degree of the firms

international diversification



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H5b: Positive association between tenure heterogeneity of top management and degree of the

firms international diversification

H5c: Positive association between educational heterogeneity of top management and degree of

the firms international diversification

H5d: Positive association between functional heterogeneity of top management and degree of the

firms international diversification

Methodology:

Sample consists of 126 firms from US Electronics industry.

Heterogeneity of age and tenure taken by dividing the standard deviation by mean of each

Heterogeneity of education and functional het: calculated based on Blaus heterogeneity measure

1- (p) , where is the proportion of the team in the ith educational or functional category.

Tool used: Two-step Hierarchical multiple regression analysis.

Before running analysis, all the variables were tested for possible problems related to

distribution. Because a significant level of skewness was found in firm size and top management

team size, logarithmic transformation was used for these variables. Other variables were

normally distributed with an acceptable range of skewness, therefore no additional

transformations were made.

1-step: Control variables were entered in the fist step. This illustrates that the control variables

have no significant relationship with degree of international diversification.

2-step: The Independent variables were entered.

Results:

R was 26% at p < 0.01 (significance level) and F= 4.03. Thus, it is found that the composition oftop management adds to the prediction of degree of internationalization of firm.

The standard coefficients of the Independent variables is significant, thus supporting the

Hypotheses 1, 2, 3, and 4. Also, there is significant relationship between team heterogeneity and

international diversification. Thus, supporting H5b. However, other heterogeneities are not found

to have significant relationship with firm diversification.



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Hence, it is found that characteristics like lower average age, higher average tenure, higher

average elite education, higher average international experience and higher tenure heterogeneity

are associated with firm international diversification. The study reinforces the importance of top

management team composition in internationalization decisions.

Literature Review-4

The Influence of the Management Team's International Experience on theInternationalization Behaviors of SMEs

Objective:

The purpose of this paper is to explore the relationship between management's International

experience and the internationalization of SMEs. The empirical findings are based on a sample

of Canadian software product firms.

It has been argued that compared with large firms, SMEs are disadvantaged in entering and

expanding sales in international markets because they lack the necessary skills and resources.Moreover, young firms are seen as being disadvantaged further because they lack the experience

and credibility that a domestic track record provides.

Variables used:

Dependent variable:

The dependent variable taken is Degree of Internationalization (DOI-sme)

There are three components of DOI (sme).

The first component is FSTS, foreign sales as a percentage of total sales, which is a standardsingle-item measure of degree of internationalization. The second component is the percentage

of the firm's employees that spends over 50% of their time on international activities. The third

component measures the geographic scope of sales by asking which of three regions, the

company made sales to: Canada only, North America only, outside North America. The threeitems are converted into a ratio measure and standardized (z). Then the three z-values are

summed to create a single score, DOI (sme).

Independent variables:

1) Partners (foreign)- the number of strategic partners of the firm with headquarters outsideCanada

2) International experience- Founders exposure to international markets

Control Variables: Firm size and firm age

Hypothesis:



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H1a: The international experience of the top management team in Canadian software product

SMEs is related to the use of foreign strategic partnerships by the firm

H1b: The use of foreign strategic partnerships by Canadian software product SMEs mediates the

relationship between the team's international experience and the firm's degree of

internationalization.

Methodology:

Data relevant to the hypotheses were collected from Canadian software product firms. A

questionnaire was developed on the basis of previous research and interviews. The

questionnaires were given to the firm's founder or to a member of the firm's top managementteam by trained research assistants.

The sample size was 49 firms.

Tool used: Test for Mediation using Regression equations

Coefficients of the variables are found by doing mediation for Partners

3 Regression Eqns:

1) PARTNERS = a + INTEREXP + FIRMSIZE + FIRMAGE + e

2) DOI (sme) = a + INTEREXP + FIRMSIZE + FIRMAGE + e3) DOI (sme) =a +INTEREXP + FIRMSIZE + FIRMAGE + PARTNERS + e

According the mediation test, following four conditions must hold:

- The independent variable (International Experience) must affect the mediator (Partners)in the first equation

- The independent variable must affect the dependent variable (DOI-sme) in the secondequation

- The mediator must affect the dependent variable in the third equation

- The effect of the independent variable on the dependent variable must be less in the third

equation than in the second

Results:

- The coefficient of International Experience is shown as significant for Partners

(mediator) and not significant by the other two variables in the mediation table. This

satisfies first condition.

- International experience is a significant predictor of DOI (sme) while coefficients forFIRMAGE and FIRMSIZE are not significant. This result satisfies second condition

- The coefficient for PARTNERS is positive in third equation. Also, the coefficients and

significance levels for INTEREXP in equation 3 is less than in equation 2. These resultssatisfy the third and fourth conditions for mediation.



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Hence, from the results we can see that experienced management teams have a greater

propensity to develop foreign strategic partners. This leads to a higher degree of

internationalization.Thus, supporting hypothesis H1b which says, the use of foreign partners by Canadian software

product SMEs mediates the relationship between the teams international experience and the

firms degree of internationalization.

Literature Review-5

TITLE: The Impact of Top Management Team Nationality Diversity and International

Experience on Foreign Entry Mode

Bo Bernhard Nielsen

Sabina Nielsen

Objective of the research paper:

The geographic diversity and uneven concentration of resources (human resource) has given a

boost for firms to operate in international markets .This has created a dependency of nations in

terms of resources and this is the threshold of rich international experience of top notch people inthe organization which is bolstering organizations to expose and grow more internationally.

Methodology:

Data was collected for 165 firms over a seven year period (2001-2007). Information on the

characteristics of the TMT was obtained from company annual reports and websites. Foreign

expansion outside the home region was coded as 1 if an investment was made outside Europe

and 0 otherwise. Acquisitions and Greenfield investments were coded as 1, and joint ventures as

0) and establishment mode (Greenfield equals to 1 and acquisition equals to 0). international

diversification was controlled using the entropy measure of firm diversification (Palepu, 1985),

calculated with theformula Pi ln(1/Pi)2 where P was the percentage of segment sales of the

total firm sales. TheBlau index captured the dispersion of team members across all possible

categories of a certain dimension using the formula B = [1- (pi)2], where p was the percentage



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of members in the group . The higher the value of B, the greater was the heterogeneity on a

particular variable.

Variables Considered:

Firm size, Firm internationalization, Industry dynamism, CEO international experience, TMT

size TMT industry size, TMT Educational diversity, TMT functional diversity, TMT

international experience TMT international diversity, Number of Ijv ,TMT national diversity,

Number of international acquisitions ,Number of Greenfields etc..

Logistic HLM analysis and Poisson HLM analysis was used to procure the results

Hypothesis:

H1: the higher the TMT nationality diversity, the more likely the firm will expand outside the

home region.

H2: TMT international experience increases the propensity to form Greenfield investments

abroad.

H3: TMT nationality diversity increases the propensity to engage in international joint ventures

H4: TMT nationality diversity increases the propensity to engage in international acquisitions

Results:

TMT nationality diversity was positively related to the likelihood of expanding outside the home

region (b = .88, p

< .05).

TMT international experience was positively associated with the propensity to establish

Greenfield subsidiaries (b = .85, p < .05)

TMTs were more likely to form international joint ventures, was also supported (b = 2.66,p < .

01)



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TMT nationality diversity was positively associated with the propensity to undertake

international acquisitions (b = .82, p < .05).

Literature Review-6

TITLE: TOP MANAGEMENT TEAM DEMOGRAPHY AND CORPORATE

STRATEGIC CHANGE

MARGARETHE F. WIERSEMA University of California, Irvine KAREN A. BANTEL

Objective of the paper:This study examined the relationship between the demography of top

management teams and corporate strategic change, measured as absolute change

Methodology:

Sample A random sample of 100 firms was selected from Fortune 500 companies in year

1980Variables Considered:

Age, Education Level Educational qualification, Organizational Tenure, Top management and

team tenure, Control variables were Top management team size, Organizational structure, Prior

organization performance

Hypothesis:

Hypothesis 1a: The average age of top management team will be negatively related to a change

in corporate strategy

Hypothesis 1b: Age heterogeneity within a top manage-ment team will be positively related to

change in corporate strategy, but the association will decrease more the number of teams.

Hypothesis 2a: Low average organizational tenure of a top management team will be positively

related to a change in corporate strategy



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Hypothesis 2b: Organizational tenure heterogeneity within a top management team will be

positively related to change in corporate strategy, but the association will decrease more

heterogeneous the team.

Hypothesis 3a: Average tenure of a top management team will be negatively related to the

change in corporate strategy.

Hypothesis 3b: Tenure heterogeneity within a top management team will be positively related to

change in corporate strategy, but the association will decrease more heterogenous the team.

. Hypothesis 4: Average educational level of a top management team will be positively related to

change in corporate strategy

Hypothesis 5a: Academic specialization in science and engineering within a top management

team will be positively related to change in corporate strategy

Hypothesis 5b: Educational specialization heterogeneity within a top management team will be

positively related to change in corporate strategy

Multiple regressions on 5 models is used.

Results:

For firms with teams with relatively short organizational tenures (


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Literature Review-7

THE INTERNATIONALIZATION OF SMALL AND MEDIUM-SIZED ENTERPRISES:

THE EFFECT OF FAMILY MANAGEMENT, HUMAN CAPITAL AND FOREIGN

OWNERSHIP

Objective

This paper aims an empirical investigation of the internationalization of SMEs, with particular

attention to analysis of the influence that the family management, human capital, and foreign

ownership have on international development.

The focus is mainly on the nature of management in family own business and non-family own

business. Owner ship of business is not considered except when ownership structure has foreign

shareholder.

They have studied different paper related to family own business, internationalization of SMEs,

internationalization process, international new ventures, and demographic characteristic of

management, internationalization of family business etc.

Hypothesis 1: The family nature of management is negatively related to the internationalization

of SMEs.

Hypothesis 2: Human capital is positively related to the internationalization of SMEs.

Hypothesis 3: The presence of foreign shareholders is positively related to the

internationalization of SMEs.

Methodology:

Data source:

Empirical analysis was carried out on a representative sample of 1,324 small and medium-sized

Italian manufacturing firms, with a number of employees between 11 and 250.

Variables

Dependent variable: Export propensity and Export intensity

Export propensity is a dummy variable with value 0 if the firm only serves the Italian market, 1

if the firm has some sales abroad.



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Independent variables: Family management, Human capital, Foreign ownership

Control variables:Age , Size and Industry

Panel Regression was performed on the data source to found out the results.

INT = 0 + 1FamilyMan. + 2HumanCap. + 3ForeignOwn. + 4Age + 5Size+SectoralDummies + Where, INT is export propensity and export intensity

Result:

The results partially support hypothesis 1: involvement of family members in management of the

business negatively influences the export propensity (p < 0.05). In other words, the presence of

managers from outside the family is positively associated with the firms choice to enter

international markets. Family involvement can turn into a constraint to internationalization.

Hypothesis 2 about the influence of human capital is confirmed: the number of graduates, in

relation to the total number of employees, positively and significantly influences both export

propensity (p < 0.10) and export intensity (p < 0.05). These results support the view according to

which not only financial or technical resources, but also human resources play a fundamental

role in the internationalization strategies of a firm

The analysis also confirms the third hypothesis: the presence of foreign shareholders positively

influences internationalization. Export intensity is greater in businesses that are internationalized

financially (p < 0.05).

Literature Review-8

MATCHING MANAGERS TO STRATEGIES: DO MULTINATIONAL COMPANIES

NEED MULTICULTURAL TOP MANAGEMENT TEAMS?

In this article they developed, empirically test of a theoretical framework that links TMT cultural

heterogeneity with team processes and performance, and a contingency model for the impact on

performance of a fit between the degree of MNC internationalization and the degree of TMTcultural heterogeneity.

H1:By increasing TMT intra-group cognitive capacity, cultural heterogeneity positively impacts

decision quality.

H2: By increasing TMT intra-group emotional conflict, cultural heterogeneity negatively

impacts decision timeliness and decision commitment.



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H3: By detracting from TMT intra-group communication fluency, cultural heterogeneity

negatively impacts TMT decision timeliness.

H4:By improving TMT inter-group direct interaction capability, cultural heterogeneity positively

impacts global stakeholder satisfaction.

H5: By increasing TMT inter-group symbolic power, cultural heterogeneity positively impacts

global stakeholder satisfaction

H6: Members of culturally heterogeneous TMTs perceive the costs to outweigh the benefits.

TMT cultural heterogeneity is therefore believed to be detrimental to MNC performance.

H7: MNCs pursuing low DOIs will be led by TMTs characterized by a low degree of cultural

heterogeneity. MNCs pursuing high DOIs will be led by TMTs characterized by a high degree of

cultural heterogeneity.

H8: MNCs that match their TMT degree of cultural heterogeneity with their DOI significantlyoutperform companies that fail to do so.

Methodologies:

Data source:Secondary data for 94 MNC were taken.

Regression and multiple regression analysis was used to test the hypothesis.

Variables:

Independent variable: cognitive capacity, emotional conflict, and communication fluencydecision quality, decision timeliness, decision commitment, global stakeholder satisfaction, and

cultural heterogeneity

Dependent variable: Inter-team performance and company performance.Cluster analysis was used to find different clusters depending upon internationalization. The

ideal TMT profile was found and its performance was evaluated using Euclidean

distance from the respective ideal TMT profile.

Results:

Hypothesis 1, 2, 3 and 5 was conformed and accepted. Hypothesis 4 was rejected. Hypothesis 6

was not conformed. Hypothesis 7 and 8 was also accepted.

Literature Review 9CORPORATE ELITE CHARACTERISTICS AND FIRMS

INTERNATIONALIZATION: CEO-LEVEL AND TMT-LEVEL ROLES

Objectives: This research paper highlights the certain haziness of the corporate elite Chief

Executive Officer (CEO) and Top Management Team (TMT) and its effect on corporateinternationalization strategy.



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This work concludes that there exists a curved relationship between CEO position tenure, TMT

size, and TMT tenure heterogeneity and a firms internationalization, by combining preceding

upper level premise and processing international business school perspective.

The detailed experimental findings indicate that CEO and TMT characteristics show a nonlinear

relationship. As a sample, they have taken 165 Taiwanese firms operating in a technologicallyconcentrated industry.

An reversed U-shaped relationship exists amid CEO position tenure and TMT size as regards afirms internationalization. These relations are an inverted U-shape, when internationalization

level facing TMT term heterogeneity is accounted for.

Variables:

Dependant Variable- The purpose of this research was to capture the breath and depth of the

internationalization the firm was going through. So they used the Carpenter and Sanders three

internationalization dimensions that were Foreign sales (reflects the foreign sale to total sale ratio)

Foreign Production (shows the ratio of foreign assets as a percent of total assets)

Geographic dispersion (the number of countries the firm has a subsidiary in)

The first two attributes show the depth of the MNC involvement abroad and last attributecaptures the breadth

Independent Variables- They were the following

CEO Tenure was calculated by counting the number of years the executive had been withthe firm in that position. It was taken as the number of calendar years he worked in that

firm or in that industry. A square of the tenure was also calculated. The number of the executives in the Top Management Team was also included. This

number was calculated by counting the number of executives who were above the vice-

president level as they would be the major ones involved in the decision making of the

firm. Hence the TMT size was an independent variable.

The TMT tenure heterogeneity was another independent variable. The deviation of the

tenure of the TMT was divided by the number mean tenure of the TMT. This gave the

tenure value and the higher the value, higher was the homogeneity.

Control Variables- They were

Firm Size that measured the assets of the firm

Firms dependence on international operations. Hence control for diversification. Prior performance was controlled in order to know any poor performance and lack of

resources in the past for the firm

Board sizeHypotheses: The following were the 3 hypotheses of the research paper

H1- An inverted U curvilinear relationship between CEO position tenure and the firmsinternationalization.



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H2 - An inverted U curvilinear relationship between TMT size and the firms


H3 - An inverted U curvilinear relationship between TMT tenure heterogeneity and the firms


Methodology: Thesample mainly consisted of High-Technology listed corporations. Since there

was rapid change in the global trends with regard to technological field in the year 2003, thesample period selected was 2003. The sampling frame was the Taiwan Economic Journal

Database that provided financial information on publically traded firms in Taiwan.

This database consisted of 305 firms but after the data was collected, data from only 165 firmswas usable data and hence the sample size for this research paper was 165 firms. Annual reports

of these companies were collected in order to collect the required data for the research.

Since the relationships are recursive and the dependent variables are continuous, multipleregression was a technique used to analyse the data and obtain the required results.

Results: The average level of internationalization degree for the taken sample was 0.980 and

there is positive correlation between CEO tenure, TMT Size and TMT tenure heterogeneity. The

regression model has an adjusted R2 of 0.027. The curvilinear relationship between CEO Tenure

and the internationalization of the firm was supported which proves H1. H2 was also verysignificant but H3 was marginally significant.

Literature Review -10

INTERNATIONALIZATION AND FIRM PERFORMANCE: THE S-CURVEHYPOTHESIS UNDER THE EUROZONE CONTEXT

Objectives:In this research paper, analysis is done on the gains in performance of internationaldiversified firms in the Eurozone, taking into consideration the impact of the interactive outcome

of both product and international diversification on this performance.

They have tested all the conflicting relations explored in the literature of internationaldiversification (linear, quadratic and cubic), and come to the conclusion that the S-curve is a

more holistic approach, since it considers different stages of different firms, regarding the

international diversification-performance relation.

Other important contributions of this article are:

i) The fact that not only account based measures of performance are taken intoconsideration, but also market based measuresare

ii) It is unlike previous studies as they have taken a sample that is multi country and

European;



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iii) They take into account not only manufacturing or service firms exclusively, but both

together.

Variables: The following were the variable selected in the study

International Diversification Measure- To measure geographic diversification. They usedEntropy Index. It captured the relation between corporative diversification and growing.

Product Diversification Variable- They measured sales based on the Herfindahl index whichwas applied to the firms industrial activity distribution.

Performance Variables- They used Return on Sales (ROS), Return on Assets (ROA) and Return

on Equity (ROE) for this criteria as an accounting measure.

Control Variables- The following were the control variable used in the study

Firm size, measured as the natural logarithm of total sales

Leverage, measured as the ratio of long-term debt to total assets

R&D intensity, measured as the ratio of R&D expenses to net sales

Gross Domestic Product

Growth, measured as the annual growth rate of total assets

Industry, measured by 2-digit industry sic group.

Hypotheses: The following are the hypotheses of the research

H1: The relationship between international diversification and firm performance is sigmoid, withthe slope negative at low stages of geographic diversification, positive at moderate levels and

negative at high levels of geographic diversification.

H2: Product diversification will positively moderate the relationship between internationaldiversification and firm performance in a way that the effect of international diversification on

performance will be more favourable under the presence of product diversification.

Methodology: They took several European Firms as their sample applying data from several

Eurozone countries. It initially chose companies from 12 countries but later due to lack of data

they cut down to 8 countries. Their period of data was from 2001 to 2003.

In their regression, they included companies that had either product or international

diversification or both. They adopted an average strategy of averaging 3 years to ensure that the

account strategy decision does not affect the final results of the research. They finally selected291 firms from the 8 countries to carry forward their research from the sectors of manufacturing,

service and others.

Results: There was a correlation analysis that had problems of multicollinearity. This shows that

variables are unstable and low on efficient parameters. Variance Inflation Factor was done to

evaluate the major problems of multicollinearity. All the hypotheses were proven right by theregression.



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Investments on R&D are also negatively related to performance. Firm size (measured as log of

net sales) was significantly related to performance. Firm leverage was negatively related toperformance and firm growth presented a positive impact on firm results.

METHODOLOGY

The project deals with the impact of top management on international diversification to pursue

the results our group members collected data on 5 industries i.e. banking sector, IT sector,

manufacturing sector, chemical sector, and textile sector. 15 companies from each sector were

considered.

Progressing ahead we considered export intensity as our dependent variable which depended

upon various independent variables like, number of directors, average age of the firm,

international exposure of the directors, educational qualification and average age of directors to

determine the impact of directors/top management for which data was collected respectively.

Data was coded wherever necessary.

The final impact was obtained by running Panel regressions on SATA to get the relevant output.

Since we took the data of the relevant companies for 3 years we received 15 outputs against them

(5 industries were considered).

Why Panel Data?

Panel data, also called cross-sectional time series data, are data where multiple cases(people,firms, countries etc) were observed at two or more time periods. Cross-sectional data contains

information about variance between subjects. Panel data comprises of two kinds of information

between and within subject.

PANEL REGRESSION OUTPUT SHEET

The output sheet shows the total number of points which is 170 in this case and the group are 59

which is nothing dividing 170 into 3 parts as we have taken three years time series data.

andom-effects GLS regression Number of obs = 170

Group variable: compid Number of groups = 59



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To check whether the model is right (fixed or random effects) or not we useHausman Test.

Hausmans specification test, orm-statistic, can be used to test hypotheses in terms of bias or

inconsistency of an estimator.

Null hypothesis:Coefficients estimated by the efficient random effects estimator aresame as

those estimated by the consistent fixed effects estimator.

o If same (insignificant P-value, Prob>chi2 larger than .05) then it is safe to use

random effects.

o If significant P-value then, fixed effects

Here in our case Prob>Chi2 =0 so its safe to use random effects.

Random effects u_i ~ Gaussian Wald chi2(10) = 200.12

corr(u_i, X) = 0 (assumed) Prob > chi2 = 0

exportinte~y Coef. Std. Err. z P>z

[95%

Conf. Interval]

industry -0.6269799

0.072403

1 -8.66 0

-

0.768887

3

-

0.4850726

Ind -0.5230805

0.072735

6 -7.19 0

-

0.665639

6

-

0.3805214

Indd -0.648463

0.078974

5 -8.21 0

-

0.803250

3

-

0.4936758

lnasset 0.0377054 0.014931 2.53 0.012 0.008440 0.0669702



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3 6

lnage -0.3736346 0.195299 -1.91 0.056

-

0.756413

6 0.0091443

lnpat -0.0078902

0.003715

1 -2.12 0.034

-

0.015171

5

-

0.0006088

boardmembers -0.0087051

0.004696

1 -1.85 0.064

-

0.017909

3 0.0004991

lntenureof~k 0.0263709

0.011545

1 2.28 0.022

0.003742

9 0.0489988

intlexp 0.021158

0.015347

1 1.38 0.168

-

0.008921

8 0.0512377

educationa~n 0.0413045 0.016283 2.54 0.011

0.009390

5 0.0732186

_cons 2.046855

0.733647

4 2.79 0.005

0.608932

7 3.484778

Here this table shows the P value of each parameter on the basis of export intensity. We look at

the P value of each to identify which variable is significant. P value is equivalent to goodness of

fit.

Industry, ind, indd are the dummy variable assign for each year. Industry for first year, ind for

2nd year, indd for third year. So their Prob value is equal to zero

Lnasset: log of asset as the there is a huge difference in the range of assets owned by each

company so by taking log value range of assets got shorter. Here prob value lnasset is .012,

which mean it is significant at 5 % level of significance.

Ho: assets owned by a company does not impact international diversification of the

company

H1: assets owned by a company does impact international diversification of the company

Here we will reject the null hypothesis and accept the alternate hypothesis.



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lnage: log of age. Here its P value is coming out to be 0.056, means that it is significant at 10%

level of significance

Ho: age of a company does not impact international diversification of the company

H1: age of a company do impact international diversification of the company


Lnpat: Their is a skewness in PAT value to over skewness we use log of pat. Here the value of

pat is coming out to be .034, which means that it is significant at 5% level of significance.

Ho: Pat of a company does not impact international diversification of the company

H1: Pat of a company do impact international diversification of the company


Boardmember: P value of board member is coming out to be .064 so we can say that it is

significant at 10% level of significance.

Ho: Number of board member in a company does not impact international diversification

of the company

H1: Number of board member in a company do impact international diversification of thecompany


Intenureof k: P value of tenure of work is coming out to be P0.022, which shows that it is

significant at 5% level of significance.

Ho: Tenure of work of a board member in a company does not impact international

diversification of the company

H1: Tenure of work of aboard member in a company does impact international





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Intlexp: P value is coming out to be 0.168, which shows that it is not significant at 10% level of

significance, as the level of acceptances as 1%, 55, and 10% so we can say that it is not

significant.

Ho: international experience of a board member in a company does not impact

international diversification of the company

H1: International experience of a board member in a company do impact international

diversification of the company.



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Here we will accept the null hypothesis and reject the alternate hypothesis.

Education~n: P value is equal to .011, which means that it is significant at 5% level of

significance.

Ho: Elite education of a board member in a company does not impact international


H1: Elite education of a board member in a company does impact international diversification of

the company


REGRESSION EQUATION

Exportintensity = 2.046855+(0.0377054) lnasset- (0.3736346) lnage- (0.0078902) lnpat-

(0.0087051) boardmembers + (0.0263709) intenureof k + (0.021158) intlexp +

(0.0413045) educationa n

CONCLUSION

From the analysis we come to know those different independent variables are significant at

different level of acceptance. If we look at 5% level of significant then assets, PAT, Tenure ofwork, and Elite Education are significant. Whereas it we look at 10% level of acceptance then we

can say that Asset, PAT, Elite Education, Tenure of work, Age of the company, Board member

all are significant, expect International Exposure of the board member.



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APPENDIX-I



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Years

CompanyId

CompanyName

SalesProfitaftertax

Grossfixed

assets

Exportof

services

Export

Intensity

BoardMembers

Age

Tenureof

work

Internationa

lexposur

e

Education

alQualificati

on

Ageof

compan

y

Industry

2008

1GenpactIndia

1,806.24 537.07 939.83

1,977.78 1.09 3 56

26.67 1.00 2.33 12

2009

1GenpactIndia

2,122.04 633.16

1,057.15

2,064.96 0.97 3 57

27.67 1.00 2.33 13

2010

1GenpactIndia

2,579.23 804.30

1,085.40

2,471.63 0.96 3 58

28.67 1.00 2.33 14

2008

2H C LTechnologies Ltd.

3,770.70

1,101.76

1,545.53

3,726.05 0.99 4 55

32.67 0.50 1.67 33

2009


4,617.76 780.64

2,018.64

4,545.86 0.98 4 56

33.67 0.50 1.67 34

2010


4,675.09 997.16

2,375.42

4,572.53 0.98 4 57

34.67 0.50 1.67 35

2008

3

Hewlett-Packard(India)SoftwareOperationPvt. Ltd. 628.74 26.16 520.82 628.74 1.00 5 64

37.20 0.67 2.00 8

2009

3

Hewlett-Packard(India)Software

OperationPvt. Ltd. 682.35 23.54 581.00 682.35 1.00 6 65

38.20 0.67 2.00 9

2010

3

Hewlett-Packard(India)SoftwareOperationPvt. Ltd. 665.40 30.31 667.47 665.40 1.00 6 66

39.20 0.67 2.00 10

2008

4Infosys B PO Ltd. 649.57 152.86 123.74 608.88 0.94 3 46

23.67 0.67 1.33 9

2009

4Infosys B PO Ltd. 825.09 149.87 227.47 755.14 0.92 3 47

24.67 0.67 1.33 10

2010

4Infosys B PO Ltd.

1,081.53 178.42 364.76

1,047.05 0.97 3 48

25.67 0.67 1.33 11

2008

5InfotechEnterprises

Ltd. 344.61 65.05 232.35 337.88 0.98 8 53

27.8

0 0.90 2.00 18

2009

5InfotechEnterprisesLtd. 435.18 58.56 370.38 423.16 0.97 8 54

28.80 0.90 2.00 19

2010

5InfotechEnterprisesLtd. 566.57 70.86 454.24 551.02 0.97 9 55

29.80 0.90 2.00 20

2008

6

Larsen &ToubroInfotechLtd.

1,278.08 151.13 288.91

1,239.35 0.97 6 65

41.00 0.67 1.83 13

2009

6

Larsen &ToubroInfotechLtd.

1,649.46 211.13 345.42

1,523.27 0.92 6 66

42.00 0.67 1.83 14

2010

6

Larsen &

ToubroInfotechLtd.

1,950.85 264.82 389.13

1,870.11 0.96 6 67

43.00 0.67 1.83 15

2008

7MphasisLtd.

1,102.85 131.53 317.63

1,031.82 0.94 6 53

28.80 0.75 2.00 9

2009

7MphasisLtd.

1,451.55 264.51 591.21

1,339.84 0.92 6 54

29.80 0.75 2.00 10

2010

7MphasisLtd.

3,405.02 836.87 590.67

3,298.11 0.97 5 55

30.80 0.75 2.00 11

2008

8N I I T Ltd. 390.27 32.93 262.98 74.10 0.19 6 60

35.83 0.71 1.57 28

2009

8N I I T Ltd. 467.38 32.77 286.98 54.47 0.12 6 61

36.83 0.71 1.57 29

2010

8N I I T Ltd. 545.62 47.21 358.40 49.92 0.09 6 62

37.83 0.71 1.57 30

2008 9

Patni

ComputerSystemsLtd.

1,171.67 387.52

1,061.41

1,162.00 0.99 6 52

25.50 0.86 2.00 31


30/33



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