Three essays on conformity and corporate governance in multinational enterprises

Abstract

Information-based theories of imitation suggest that firms would imitate others they perceive as possessing superior information when they are faced with uncertainty regarding a course of action. We draw on these theories to examine how uncertainty idiosyncratic to the firm in its multinationality engagement, i.e. ‘firm-level uncertainty in multinationality’, affects its decision to (non)conform to the multinationality decisions of the most successful industry peers, the market leader in particular. We then proceed by bringing information-processing theory into our framework to investigate how firm governance mechanisms shape the above relationship. This follows the views shared by some scholars that firm governance ‘institutions’ play a critical role in influencing a firm’s information-processing capacity, and then the way it strategizes when coping with uncertainty. More specifically, we employ an important governance ‘institution’, i.e. the board, and examine how two of its important characteristics, i.e. the amount of equity owned by a firm’s board members (‘board equity ownership’) and a firm’s board size, shape its conforming behavior when faced with uncertainty. The results of our study show that the relationship between firm-level uncertainty in multinationality and conformity in multinationality to the market leader is positive. In addition, we also found that this relationship is positively and significantly moderated by board equity ownership whiles the size of the board does not significantly affect this relationship. We test our hypotheses using data on 58 Italian ceramic tile manufacturers within the 2005-2009 timefram