Executive Experience and Expansion Strategies of Multinational Firms

Abstract

What helps firms expand abroad? In line with anecdotal evidence, this paper confirms that the experience of executives contributes to the internationalization process of multinational companies. It reveals a strong pattern between the recruitment of executives used to oversee business affairs in a given country and the probability of disclosing subsidiaries in this country in subsequent years. Interestingly, the link is more marked for foreign investments in low-income countries and senior executives such as chief operating officers. Evidence also reveals that only country-specific experience is determinant and that experience in managing multinational activities yields a compensation premium. Thus, the analysis shows that managers develop valuable country-specific knowledge and that companies invest in such expertise to step up their operations abroad.

Keywords: Foreign direct investments, multinational firms, subsidiaries, executives, executive experience, executive mobility

JEL Classification: F16, F23, H26, J62, M12