Beyond Liability: Startup Preference for Foreign Investors

37 Pages Posted: 14 Apr 2025

See all articles by Ofir Gefen

Ofir Gefen

National University of Singapore (NUS) - NUS Business School

David M. Reeb

National University of Singapore - Dept of Accounting

Hunghua Pan

National Tsing Hua University - Department of Quantitative Finance; National Tsing Hua University

Johan Sulaeman

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research (ABFER)

Andrew Delios

National University of Singapore (NUS) - Department of Business Policy

Date Written: March 18, 2025

Abstract

When do entrepreneurs value foreign investors, and when do they shun them? While prior research emphasizes the liability of foreignness in international business, we reveal how the market development stage fundamentally reshapes this dynamic in entrepreneurial finance. Through a novel field experiment with 29,132 British and Indian startups, we demonstrate three striking patterns in entrepreneurs' evaluation of potential investors before any substantive interaction occurs. First, founders in developed markets strongly prefer domestic investors, giving them a 28% higher response rate-suggesting that liability of foreignness creates powerful screening effects at the earliest stages of relationship formation. Second, entrepreneurs in emerging markets show no such bias against investors from developed economies, indicating they recognize the potential value these investors bring through networks, resources, and legitimacy. Third, gender creates systematic variation in these effects: men investors from developed markets can leverage their foreignness as an asset, while women investors from emerging markets face dramatically heightened barriers that magnify their liability of foreignness. Together, these findings advance theory by showing how the market development stage could transform foreignness liability into an advantage of foreignness-but only under specific conditions. Our results resolve conflicting findings in prior research by revealing how institutional context systematically alters international investment dynamics, offering practical implications for entrepreneurs and investors expanding across markets.

Keywords: entrepreneurship, field experiments, global strategy, international businesses, liability of foreignness, networks, venture capital

Suggested Citation

Gefen, Ofir and Reeb, David M. and Pan, Hunghua and Sulaeman, Johan and Delios, Andrew, Beyond Liability: Startup Preference for Foreign Investors (March 18, 2025). Available at SSRN: https://ssrn.com/abstract=5182969 or http://dx.doi.org/10.2139/ssrn.5182969

Ofir Gefen (Contact Author)

National University of Singapore (NUS) - NUS Business School ( email )

15 Kent Ridge Dr
Singapore, 129800
Singapore

David M. Reeb

National University of Singapore - Dept of Accounting ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.davidreeb.net

Hunghua Pan

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China
0933804873 (Phone)

National Tsing Hua University ( email )

Hsinchu
Taiwan
886933804873 (Phone)

Johan Sulaeman

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN) ( email )

Singapore

HOME PAGE: http://sites.google.com/site/johansulaeman/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/johan-sulaeman

Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Andrew Delios

National University of Singapore (NUS) - Department of Business Policy ( email )

1 Business Link
Singapore 117591
Singapore
(65) 6874-3094 (Phone)
(65) 6779-5059 (Fax)

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