Tan and Mahoney
Journal of Management Studies 43:3 May 2006 0022-2380
Why a Multinational Firm Chooses Expatriates: Integrating Resource-Based, Agency and Transaction Costs Perspectives*
Danchi Tan and J. T. Mahoney
National Chengchi University; University of Illinois at Urbana–Champaign abstract This paper develops an integrative organizational economics framework explaining and predicting multinational firms’ managerial resource deployments based on resource-based, agency, and transaction costs theories. Our empirical findings suggest that the governance decision for managerial services of multinational firms is influenced not only by the comparative capabilities of managers, but also by the economic costs to the firm of influencing the behaviours of managers through managerial contracting.
INTRODUCTION Over the past two decades in management studies, transaction costs economics has emerged as a predominant theoretical explanation of governance structure choices. While the transaction costs theory is noteworthy for its analytical rigour in explaining such governance choices, the theory is criticized by some for overemphasizing the influence of ex post contractual costs (e.g. emphasizing contractual hold-up problems due, in large part, to asset specificity) and for underemphasizing the influence of revenue creation on governance structure choices (e.g. Gong, 2003; Poppo and Zenger, 1998; White, 2000). Agency theory provides a conceptual lens for analysing ex ante contractual problems and thus provides a balance for the transaction costs theory (which emphasizes ex post contractual problems). The resource-based theory also complements the transaction costs theory by focusing on the role of resources in creating firm-level revenue and in shaping firm-level decisions. It is not surprising, therefore, that recently researchers have increasingly been integrating these three theories toward providing a more complete understanding of various corporate strategic management activities,
Why a Multinational Firm Chooses Expatriates: Integrating Resource-Based, Agency and Transaction Costs Perspectives*
Danchi Tan and J. T. Mahoney
National Chengchi University; University of Illinois at Urbana–Champaign abstract This paper develops an integrative organizational economics framework explaining and predicting multinational firms’ managerial resource deployments based on resource-based, agency, and transaction costs theories. Our empirical findings suggest that the governance decision for managerial services of multinational firms is influenced not only by the comparative capabilities of managers, but also by the economic costs to the firm of influencing the behaviours of managers through managerial contracting.
INTRODUCTION Over the past two decades in management studies, transaction costs economics has emerged as a predominant theoretical explanation of governance structure choices. While the transaction costs theory is noteworthy for its analytical rigour in explaining such governance choices, the theory is criticized by some for overemphasizing the influence of ex post contractual costs (e.g. emphasizing contractual hold-up problems due, in large part, to asset specificity) and for underemphasizing the influence of revenue creation on governance structure choices (e.g. Gong, 2003; Poppo and Zenger, 1998; White, 2000). Agency theory provides a conceptual lens for analysing ex ante contractual problems and thus provides a balance for the transaction costs theory (which emphasizes ex post contractual problems). The resource-based theory also complements the transaction costs theory by focusing on the role of resources in creating firm-level revenue and in shaping firm-level decisions. It is not surprising, therefore, that recently researchers have increasingly been integrating these three theories toward providing a more complete understanding of various corporate strategic management activities,