Final Report Summary - STATUS (THE LIMITS TO THE TRANSFER OF FIRMS’ STATUS ADVANTAGES <br/>IN CROSS-BORDER INVESTMENTS)
The literature agrees on the benefits of organizational status, but there is less information about whether and when firms can enjoy status-related benefits in different markets. Focusing on international expansion, this study argues that the extent to which a firm can transfer status advantages from its home market to a host market depends in part on the relationships between the two markets. The study builds on the international management literature and hypothesizes that two conditions influence transferability of organizational status: the interconnectedness of the home and host markets and the relative position of the two markets in terms of global connectedness. The hypotheses are tested by examining whether cross-border VC firms with high home market status contribute to the performance of their ventures in a study of 462 VC-backed biotechnology ventures in 25 countries between 1990 and 2006. Correcting for endogeneity, the results suggest that some level of interconnectedness between national markets is required for successful transfer of status, and the relative proximity of the VC firm’s home market to the core of the world trade system acts as a substitute for firm status, reducing its impact on performance.
Understanding how status transfers across international markets is also important for practical reasons. International expansion is increasingly common. In 2010, inward foreign direct investment stock was around 30 percent of world GDP, and international trade was 56 percent. While the international management literature emphasizes that firms can exploit proprietary resources such as technological know-how or marketing capabilities in an international expansion (Hymer, 1976), organizational status has received less attention as a resource that can be exploited internationally. Status shares several characteristics with intangible firm resources, but it also fundamentally differs from them due to its relational nature. Therefore, the extent to which status can be exploited in international investments presents an interesting question with practical implications.
Understanding how status transfers across international markets is also important for practical reasons. International expansion is increasingly common. In 2010, inward foreign direct investment stock was around 30 percent of world GDP, and international trade was 56 percent. While the international management literature emphasizes that firms can exploit proprietary resources such as technological know-how or marketing capabilities in an international expansion (Hymer, 1976), organizational status has received less attention as a resource that can be exploited internationally. Status shares several characteristics with intangible firm resources, but it also fundamentally differs from them due to its relational nature. Therefore, the extent to which status can be exploited in international investments presents an interesting question with practical implications.