Influence of Managerial Ownership and Compensation Structure on Establishment Mode Choice: The Moderating Role of Host Country Political Risk

Our study draws on arguments advanced in behavioral decision theory to examine the effects of managerial equity ownership and compensation structures on establishment mode choice (the choice between greenfield start-ups and cross-border acquisitions). It is based on a sample of 396 establishment mode choice decisions comprising of 291 cross-border acquisitions and 105 greenfield start-ups by non-diversified US manufacturing firms. Findings indicate that both managerial equity ownership and the proportion of contingent pay in key managers’ compensation structures are associated with the preference for cross-border acquisitions over greenfield ventures. Our analysis also indicates that there is a greater propensity on the part of managers with significant equity ownership to select acquisitions when entry involves host countries characterized by high political risk.