The association between CEOs’ foreign experiences and the digital transformation of Chinese firms
Vol 9, Issue 8, 2024, Article identifier:
VIEWS - 51 (Abstract) 56 (PDF)
Abstract
Leveraging the upper echelons theory, this paper investigates how CEOs' foreign experiences influence the digital strategic transformation of Chinese firms. The findings suggest a positive correlation between CEOs' foreign experiences and digital transformation. The firm's financialization has a negative moderating effect, while CEO duality and the presence of pressure-resistant institutional investors offer positive moderation. Notably, while financialization dampens digital innovation, pressure-resistant investors counter managerial short-sightedness, thus favoring digital transformation. CEO duality, on the other hand, ensures decisive and swift decision-making. Further analysis differentiates the impact of foreign work experiences from learning experiences on transformation, with the former showing a more significant effect.
Interestingly, these effects predominantly apply to state-owned firms and those with fewer financing constraints. These insights extend the upper echelons theory, offering guidance on CEO selection and digital transformation strategies. In this study, the mean of CEOs' foreign experience and the data lagged by one period are selected as exogenous instrumental variables, and the two-stage least squares and PSM methods are utilized to deal with the endogeneity problem; meanwhile, the conclusions are still robust after the robustness test is conducted by adding control variables and carrying out one period ahead of the explanatory variables.
Keywords
Full Text:
PDFReferences
1. Kyriakou, H., Nickerson, J. V., & Sabnis, G. (2017). Knowledge reuse for customization: Metamodels in an open design community for 3D printing. MIS Quarterly, 41(1), 315–332. https://doi.org/10.25300/MISQ/2017/41.1.17.
2. Hess, T., Matt, C., Benlian, A., & Wiesboeck, F. (2016). Options for formulating a digital transformation strategy. MIS Quarterly Executive, 15(2), 123–139.
3. Jackson, N. C. (2019). Managing for competency with innovation change in higher education: Examining the pitfalls and pivots of digital transformation. Business Horizons, 62(6), 761–772.
4. Shih, W. (2018).“Why high-tech commoditization is accelerating”, MIT Sloan Management Review, 59. (4), 52-58.
5. Xiao,M.X., & Jin,Z.L. (2007). “A study on the relationship between CEO tenure and firm performance”, Foreign Economics &Management, 8, 45-50,57.
6. Singh, A., & Hess, T. (2017). How chief digital officers promote the digital transformation of their firms. MIS Quart. Exec, 16(1), 1–17. https://aisle.aisnet.org/misqe/vol16/iss1/5
7. Hambrick, D. C .,& Mason,P.A. (1984) .Upper Echelons： The Organization as a Reflection of Its Top Managers. Academy of Management Review,9(2):193-206
8. Dokko, G.,Wilk, S L., &Rothbard, N. P.(2009) .Unpacking prior experience: How career history affects job performance. Organization Science,20(1):51-68.
9. Lin, C., Lin, P., Song, F. M., & Li, C. (2011). Managerial Incentives, CEO Characteristics, and corporate innovation in China's private sector. Journal of Comparative Economics, 39(2), 176–190. https://doi.org/10.1016/j.jce.2009.12.001
10. Yang, N., Chen, Y., & Li, A. (2019). Executive foreign experience, management autonomy, and corporate subsequent foreign M&A waiting time. International Trade Issues, (09), 161-174. doi:10.13510/j.cnki.jit.2019.09.012.
11. Cui,X.M.,Wang,J.Y., & Wang,M.(2021). Environmental Investment, CEO Foreign Experience, and Corporate Value: Appreciation or Impairment? -- Analysis from the perspective of imprinting theory. Audit and Economic Research (05),86-94.
12. Smith, K. H. (2005). Measuring innovation. Oxford University Press, New York, US, pp. 148–177. http://www.oup.com/uk/catalogue/?ci=9780199264551.
13. Giannetti ,M., Liao, G., & Yu ,X. (2015)The brain gain of corporate boards: evidence from China. The Journal of Finance，70(4):1629-1682.
14. Zhang, J.W., &Tian, L.(2020). Research the relationship between equity incentives and the business performance of listed firms -- from the analysts' perspective. Nankai Economic Research, 215(05):173-186.
15. Du, Y., Zhang, H., & Chen, J. (2018). CEO foreign experience and corporate earnings management. Accounting Research, (02), 27-33.
16. Li, X., Feng, X., & Xu, C. (2021). The impact of CEO's foreign experience on the availability of venture capital for start-ups. Wuhan Finance, (01), 82-88.
17. Wang, Y. (2020). Returnee executives, corporate life cycle, and tax incentive behavior. Friend of Accounting, (15), 61-67.
18. Greve, P., Biemann, T. and Ruigrok, W. (2015), “Foreign executive appointments: a multilevel examination”, Journal of World Business, 50(4), 674-686.
19. Bauweraerts, J., Colot, O., (2018). Exploring top management team composition in private family firms. Int. Adv. Econ. Res. 24 (3), 283–284
20. Li, Y., Cui, L., (2018). The influence of the top management team on Chinese Firms' FDI ambidexterity. Manag. Organ. Rev. 14 (3), 513–542.
21. Yoon, W., Kim, S.J., Song, J., (2015). Top management team characteristics and organizational creativity. Rev. Manag. Sci. 10 (4), 757–779.
22. Jaswadi, J., Purnomo, H. and Sumiadji, S. (2022), “Financial statement fraud in Indonesia: a longitudinal study of financial misstatement in the pre-and post-establishment of financial services authority”, Journal of Financial Reporting and Accounting.
23. Mukherjee, D., Kumar, S., Mukherjee, D. and Goyal, K. (2022), “Mapping five decades of international business and management research on India: a bibliometric analysis and future directions”, Journal of Business Research, 145,864-89.
24. Bužavait˙e, M.; Šˇceulovs, D.; Korsakien˙e, R. (2019)Theoretical approach to the internationalization of SMEs: Future research prospects based on bibliometric analysis. Entrepreneurship Sustain. Issues 6, 1297–1311.
25. Li,H.M.,Long,K.J.,&Wu,F.(2021). Heterogeneous institutional investors and firm digital transformation. Financial BBS, 26 (11): 37-46 + 56. DOI: 10.16529 / j.carol carroll nki. 11-4613 / f 2021.11.005.
26. Schmid, S. and Mitterreiter, S. (2020), “International top managers on corporate boards: dissimilarity and tenure”, Management International Review, 60(5), 787-825.
27. Lee, J. H., & Roberts, M. J. (2015). International returnees as outside directors: A catalyst for strategic adaptation under institutional pressure. International Business Review, 24(4), 594–604.
28. Cumming, D. J., Duan, T., Hou, W., & Rees, B. (2016). Do returnee CEOs transfer institutions? Evidence from newly public Chinese entrepreneurial firms. Available at SSRN.https://ssrn.com/abstract=2780680.
29. Chen, P. L., Tan, D., & Jean, R. J. (2016). Foreign knowledge acquisition through inter-firm collaboration and recruitment: Implications for domestic growth of emerging market firms. International Business Review, 25(1), 221–232.
30. Cao, H. M., Ding, X.Y & Cheng,S.(2020).CEO Foreign experience and corporate performance: from the perspective of property rights heterogeneity. Friends of Accounting (22),89-95.
31. Slater. D.J.,&Heather. D.F.,(2009).CEO international assignment experience and corporate social performance. Journal of Business Ethics,89(3):473- 489.
32. Dai, Y.H., & Kong, D.M. (2017). Whether Foreign experience of senior executives can improve firm investment efficiency. Journal of World Economy,(1): 168-191.
33. Babin, R., & Grant, K. A. (2019). How do CIOs become CEOs? Journal of Global Information Management, 27(4), 1–15.
34. Vial, G. (2019). Understanding digital transformation: a review and a research agenda. J. Strateg. Inf. Syst 28, 118–144. doi: 10.1016/j.jsis.2019.01.003
35. Axel, H., Heinz, T .W., Daniel B., &Tim, W. (2021)Digital innovation: Review and novel perspective, Journal of Strategic Information Systems 30.
36. Nambisan, S., Lyytinen, K., Majchrzak, A., &Song, M., (2017). Digital Innovation Management: Reinventing Innovation Management Research in a Digital World. MIS Quarterly 41 (1), 223–238.
37. Olsen, T.L. &Tomlin, B. (2020).“Industry 4.0: Opportunities and challenges for operations management”, Manufacturing and Service Operations Management, 22 (1), 113-122.
38. Foss, N. J., & Saebi, T. (2017). Fifteen years of research on business model innovation: How far have we come, and where should we go? Journal of Management, 43(1), 200–227. https://doi.org/10.1177/0149206316675927.
39. Kache, F.,& Seuring, S. (2017). “Challenges and opportunities of digital information at the intersection of Big Data Analytics and supply chain management”, International Journal of Operations and Production Management, 37 (1), 10-36.
40. Hinings, B., Gegenhuber, T., & Greenwood, R. (2018). Digital innovation and transformation: An institutional perspective. Information and Organization, 28(1), 52–61. https://doi.org/10.1016/j.infoandorg.2018.02.004.
41. Nambisan, S., Wright, M., & Feldman, M. (2019). The digital transformation of innovation and entrepreneurship: Progress, challenges, and key themes. Research Policy, 48(8), Article 103773.
42. Gregory, G. D., Ngo, L. V., & Karavdic, M. (2019). Developing e-commerce marketing capabilities and efficiencies for enhanced performance in business-to-business export ventures. Industrial Marketing Management, 78, 146–157.
43. You, K., Dal Bianco, S., Lin, Z., & Amankwah-Amoah, J. (2019) .Bridging technology divide to improve business environment: Insights from African nations. Journal of Business Research, 97, 268–280.
44. Dao, T. T., & Yang, C. (2019). Impact of interactive service on international customers' behavior intentions regarding local tourism services in Vietnam: The mediating effects of pleasant arousal and memory. International Journal of Business & Information, 14(1), 145–167 https://10.0.26.46/ijbi.201903_14(1).0006.
45. Li, H., Long, H., & Wu, F. (2021). Heterogeneous institutional investors and corporate digital transformation. Financial Forum, (11), 37-46+56. doi:10.16529/j.cnki.11-4613/f.2021.11.005.
46. Dutta, G., Kumar, R., Sindhwani, R., & Singh, R. K. (2020). Digital transformation priorities of India’s discrete manufacturing SMEs — A conceptual study in perspective of Industry 4.0. Competitiveness Review, 30(3), 289–314.
47. Saarikko, T., Westergren, W. H., & Blomquist, T. (2020). Digital transformation: Five recommendations for the digitally conscious firm. Business Horizons, 63(6), 825–839.
48. Artemenko, E.(2020). The Roles of Top Management in Digital Transformation. IOP Conf. Ser. Mater. Sci. Eng. 940, 12-14.
49. Magnusson, J., Khisro, J., Bj¨orses, M., &Ivarsson, A.(2020). Closeness and distance: configurational practices for digital ambidexterity in the public sector. Transform. Government: People Process Policy.
50. He. Y., Yu .W. L., &Yang. M. Z. (2019).CEO compound career experience, corporate risk-taking, and corporate value. Chinese Industrial Economy,9:155-173.
51. Chen,J.,Sharma,P.,Z,han,W.,&Liu,L. (2019). Demystifying the impact of CEO transformational leadership on firm performance: Interactive roles of exploratory innovation and environmental uncertainty. J. Bus. Res, 96, 85–96.
52. Bai, W., Kao, P., & Wu, J. (2021). Returnee entrepreneurs and the performance implications of
53. Political and business relationships under institutional uncertainty. Journal of Business Research, 128, 245–256. https://doi.org/10.1016/j.jbusres.2021.02.014.
54. Yuan, R., and W. Wen. (2018). Managerial foreign experience and corporate innovation. Journal of Corporate Finance 48:752–70. doi:10.1016/j.jcorpfin.2017.12.015.
55. Krippner, G. R. (2005). The financialization of the American economy. Socio-Economic Review, 3(2), 173–208. https://doi.org/10.1093/ser/mwi008
56. Davis, L. E. (2018). Financialization and the non-financial corporation: An investigation of firm-level investment behavior in the United States. Metroeconomica, 69(1), 270–307. https://doi.org/10.1111/ meca.12179.
57. Demir, F. (2009) “Financial Liberalization, Private Investment, and Portfolio Choice: Financialisation of Real Sectors in Emerging Markets.” Journal of Development Economics, 88 (2), 314–324.
58. Zhong, Y.X., & Lin, L. (2019). Financialization, life cycle, and persistent innovation: An empirical research based on the industrial difference. Journal of Finance and Economics, 45(08), 43–57. https://doi.org/10.16538/j.cnki.jfe.2019.08.003
59. Khan, H. U. R., Khidmat, W. B., & Awan, S. (2020). Board diversity, financial flexibility, and corporate innovation: Evidence from China. Eurasian Business Review, 11(2), 303–326. https://doi.org/10. 1007/s40821-020-00171-9
60. Xu, X.,&Xuan, C.(2021).A study on the motivation of financialization in emerging markets: The case of Chinese nonfinancial corporations. Int. Rev. Econ. Financ. 72, 606–623.
61. Zheng,J.X., Jiang .D .,&Yong. C . W(2022) Does financialization of nonfinancial corporations promote the persistence of innovation: evidence from Ashare listed manufacturing corporations in China.Eurasian Business Review12:229–250 https://doi.org/10.1007/s40821-021-00193-x
62. Rabinovich, J. (2019). The financialization of the non-financial corporation. A critique of the financial turn of accumulation hypothesis.Metroeconomica, 70(4), 738–775.
63. Jibril, H., Kaltenbrunner, A., & Kesidou, E. (2018). Financialisation and Innovation in Emerging Economies: Evidence from Brazil. Leeds University Business School Working Paper, 18–09. https:// doi.org/10.2139/ssrn.3188021.
64. Hein, E., & Dodig, N. (2015).“Finance-Dominated Capitalism, Distribution, Growth, and Crisis: Long-run Tendencies.” In E. Hein, D. Detzer, and N. Dodig (eds.), The Demise of Finance-dominated Capitalism: Explaining the Financial and Economic Crises. Cheltenham: Edward Elgar, 54–114.
65. Wu, Z. (2022). Using machine learning approach to evaluate the excessive financialization risks of trading enterprises. Computational Economics, 59(4), 1607-1625.
66. Zhang, D., Ma, S., & Pan, X.(2019).Institutional investors, controlling shareholders and CEO pay-performance relationship: evidence from China, Accounting and Finance, https://doi.org/10.1111/acfi.12580
67. Zhang, F., Wei, L.,Yang, J.,&Zhu, L. (2018).Roles of Relationships between Large Shareholders and Managers in Radical Innovation: A Stewardship Theory Perspective. J. Prod. Innov. Manag. 35, 88–105.
68. Rong, Z., Wu, X., & Boeing, P. (2017). The effect of institutional ownership on firm innovation: Evidence from Chinese listed firms. Research Policy, 46(9), 1533–1551. https://doi.org/10.1016/j.respol.2017.05.013
69. Agha, M., & Hossain, M. M. (2022). Are board monitoring and CEO incentives substitutes for each other? Evidence from Australian market reaction to acquisition announcements. International Review of Financial Analysis, 81, Article 102042. https://doi.org/10.1016/J.IRFA.2022.102042
70. Gupta, N.; Mahakud, J.(2021) CEO characteristics and bank performance: Evidence from India. Manag. Audit. J, 35, 1057–1093.
71. Klepek, M., & Bauerova, R. (2020). Why do retail customers hesitate to shop for grocery shopping online? Technological and Economic Development of Economy, 26(6), 1444–1462. https://doi. org/10.3846/tede.2020.13970
72. Barszczewski, J. (2021). Creativity as neoliberal self-governance. Creativity Studies, 14(2), 593–603. https://doi.org/10.3846/cs.2021.12311
73. Khan, I.; Wang, M. (2021)Evaluating Corporate Performance and Bank Productivity in China: The Moderating Role of Independent Directors. Sustainability, 13, 3193. https://doi.org/10.3390/ su13063193
74. Michael. A. and Phyu P.A.A(2018)Board characteristics And the likelihood of business model innovation adoption: evidence from the smart home industry, International Journal of Innovation Management. 22, (1),28.
75. Hsu, S., Lin, S.W., Chen, W.P., et al., (2021). CEO duality, information costs, and firm performance. N. Am. J. Econ. Finance 55, 101011.
76. Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Dong, J. Q., Fabian, N., & Haenlein, M. (2021). Digital transformation: A multidisciplinary reflection and research agenda. Journal of Business Research, 122, 889–901.
77. He.F.,&Liu,H.X.(2019).Evaluation of the performance improvement effect of digital transformation of real firms from the digital economy perspective. Reform, (4): 137-148.
78. Qi. H.J., Cao. X.Q.,&Liu.Y.X.(2020). The impact of the digital economy on corporate governance from the perspective of information asymmetry and managers' irrational behavior. Reform, (4): 50-64.
79. Wu, F., Hu, H.Z., Lin, H.Y., &Ren., X.Y.(2021). Firm digital transformation and capital market performance: Empirical evidence from stock liquidity. Management World,37(07):130-144+10.
80. Ling Runze, Ailing, & Li,B.(2021). Can supply chain finance improve a firm's innovation level? Finance research, 47 (02): 64-78. The DOI: 10.16538 / j.carol carroll nki jfe. 20200816.201.
81. Lin, C., &Zhang, S.C. (2019). International diversification, CEO foreign experience, and stock price crash risk: empirical evidence based on GEM listed firms. Journal of Nanjing Audit University,16(06):61-71.
82. Denis, D. J. (2009) Siblkov V. Financial constraints, investment, and the value of cash holdings.The review of financial studies, 23 (1): 247－269．
83. Du, Y., Xie, J., &Chen J.Y.(2019). The Financial background of the CEO and the financialization of real firms. China's industrial economy, (5): 136-154. The DOI: 10.19581 / j.carol carroll nki ciejournal.
84. Heyden, M.L.M., Reimer, M., Van Doorn, S., (2017). Innovating beyond the horizon: CEO career horizon, top management composition, and R&D intensity. Hum. Resour. Manag. 56, 205–224.
85. Hanelt, A., Firk, S., Hildebrandt, B., Kolbe, L.M., (2021). Digital M&A, digital innovation, and firm performance: an empirical investigation. Eur. J. Inf. Syst. 30, 3–26.
86. Diller, M., Asen, M. and Spath, T. (2020), “The effects of personality traits on digital transformation: evidence from German tax consulting”, International Journal of Accounting Information Systems, 37,1-16, 100455.
87. Aghion, P., J. V. Reenen., & Zingales. L. (2013). Innovation and institutional ownership. American Economic Review 103 (1): 277–304. doi: 10.1257/aer.103.1.277
88. Granger, C. W. J. (1991). Modeling economic series: Readings in econometric methodology. Oxford: Clarendon Press.
89. Jiang, F., Cai, W.,Wang, X.,& Zhu,B. (2018). Multiple large shareholders and corporate investment: Evidence from China. Journal of Corporate Finance 50 (3):66–83. doi:10.1016/j.jcorpfin.2018.02.001.
90. Lai, S.M., & Liu. C.L. (2018). Management characteristics and corporate investment efficiency. Asia-Pacific Journal of Accounting & Economics 25 (3–4):295–312.doi:10.1080/16081625.2016.1266270
91. Liu, F. C., Mo, J. X., & Ma, R. K. (2017). The impact of TMT foreign background on firm innovation performance. Management Review, 29(7), 135–147. in Chinese
92. Zhong, X., Chen, W., & Lin, Y. (2018). CEO characteristics, internationalization speed, and corporate performance. China Science and Technology Forum, (09), 141-147. DOI:10.13580/j.cnki.fstc.2018.09.022.
93. Xia .H.(2019). An empirical test of the influence of executives' foreign background on firms' inefficient investment. Statistics and Decision Making,16:184-188.
94. Meng. X.Z., Zhang. J.R., &Bai. X.L.(2018). The relationship between the career experience, tenure of external CEO, and corporate business strategy change. Management Review,8:168-181.
95. Duchin, R. (2010). Cash holdings and corporate diversification. The Journal of Finance 65 (3), 955–992.
96. Lyytinen, K., Yoo, Y., Boland Jr.,& R.J., (2016). Digital Product Innovation Within Four Classes of Innovation Networks. Information. Syst. J. 26 (1), 47–75.
97. Arlott, A., Henike, T., & Hölzle, K. (2019). Digital Entrepreneurship and Value Beyond: Why to Not Purely Play Online. In R. Baierl, J. Behrens & A. Brem, Digital Entrepreneurship: Interfaces Between Digital Technologies and Entrepreneurship (1- 22). Cham: Springer. https://doi.org/10.1007/978-3-030-20138-8_1
98. Sebastian, I. M., Moloney, K. G., Ross, J. W., Fonstad, N. O., Beath, C.,&Mocker, M. (2017). How big old firms navigate digital transformation. MIS Q. Exec. 16, 197–213. doi: 10.4324/9780429286797-6
DOI: https://doi.org/10.59429/esp.v9i8.2883
(51 Abstract Views, 56 PDF Downloads)
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Li zhang
This work is licensed under a Creative Commons Attribution 4.0 International License.