Relational Contracts and Managerial Delegation: Evidence from Foreign Entrepreneurs in Russia

42 Pages Posted: 25 Mar 2016 Last revised: 25 Aug 2019

See all articles by Elena Kulchina

Elena Kulchina

North Carolina State University; Duke University; Duke Innovation & Entrepreneurship Initiative

Joanne E. Oxley

University of Toronto - Joseph L. Rotman School of Management

Date Written: August 23, 2019

Abstract

We examine the managerial delegation decisions of foreign entrepreneurs, and assess how these decisions are shaped by characteristics of the local product and labor market environment. We argue that actual or perceived home bias in court proceedings leads foreign entrepreneurs to place little reliance on formal contracts in their dealings with local agent managers. Adopting the lens of relational contract theory, we develop hypotheses linking managerial delegation decisions to market conditions associated with stable self-enforcing agreements, and test the hypotheses in the context of post-Soviet Russia. Consistent with our arguments we find that foreign entrepreneurs are more likely to hire an agent manager in local markets where industry growth creates a substantial ‘shadow of the future,’ where managers’ outside employment options are relatively limited, and where competition and the variability of returns are not so high as to induce defection from an informal agreement. Similar observations on a sample of Russian-owned entrepreneurial firms suggest that these delegation decisions are relatively insensitive to local market conditions, but are influenced by the density of local reputation networks. Our study thus contributes to understanding of the distinctive features of foreign entrepreneurs’ managerial delegation decisions, and reinforces the view that contracting impediments constitute one important aspect of the ‘liability of foreignness’ for entrepreneurial firms.

Keywords: relational contracts, entrepreneurs, managers, agents, agency problems

JEL Classification: M13, F23, L14, J41

Suggested Citation

Kulchina, Elena and Oxley, Joanne E., Relational Contracts and Managerial Delegation: Evidence from Foreign Entrepreneurs in Russia (August 23, 2019). Duke I&E Research Paper No. 16-13, Available at SSRN: https://ssrn.com/abstract=2753455 or http://dx.doi.org/10.2139/ssrn.2753455

Elena Kulchina (Contact Author)

North Carolina State University ( email )

Hillsborough Street
Raleigh, NC 27695
United States

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

Joanne E. Oxley

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-0305 (Phone)

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