Do Foreign Entrepreneurs Benefit Their Firms as Managers?

Abstract

The entrepreneurship literature has extensively studied an individual’s decision to found a new venture, but it has little to say about the individual’s choice to operate this venture personally or hire an agent. This decision is particularly challenging for foreign entrepreneurs, who, in addition to traditional factors, such as agency costs and personal preferences, need to take into consideration the benefits and liabilities of foreignness. Using novel data on foreign entrepreneurial firms and instrumenting for the owner-manager choice with a visa policy change, we find that managing foreign entrepreneurs significantly improve firm performance. Our results further suggest that foreign owner-managers reduce operating costs but have no effect on the firm’s productivity and growth.

Keywords: choice of manager, foreign entrepreneurs, firm performance, owner-manager, founder-CEO

JEL Classification: M13, F23, F22, M1