TY - JOUR
T1 - Effects of presidents' characteristics on internationalization of small and medium firms in Japan
AU - Todo, Yasuyuki
AU - Sato, Hitoshi
N1 - Funding Information:
This research was conducted as part of the Project on International Trade and Firms undertaken at the Research Institute of Economy, Trade and Industry (RIETI). The authors thank RIETI for its financial support and the Ministry of Economy, Trade and Industry (METI) for providing firm-level data sets for Japan. The authors are also grateful to two anonymous referees, Masahisa Fujita, Banri Ito, Toshiyuki Matsuura, Masayuki Morikawa, Kozo Oikawa, Masahiko Ozaki, Kotaro Tsuru, Ryuhei Wakasugi, and seminar participants at RIETI for helpful comments. The opinions expressed and arguments employed in this paper are the sole responsibility of the authors and do not necessarily reflect those of RIETI, METI, or any institution with which the authors are affiliated.
Publisher Copyright:
© 2014 Elsevier Inc.
PY - 2014/12/1
Y1 - 2014/12/1
N2 - Recent heterogeneous-firm models of international trade suggest that productivity determines whether firms engage in export activity and foreign direct investment. In practice, however, many productive firms are not internationalized, whereas many unproductive firms are, which suggests that there are factors other than productivity that influence firms' internationalization. This study uses a unique panel data set for Japanese small and medium enterprises (SMEs) to examine whether the personal characteristics of a firm's president are factors in firm internationalization. We find that SMEs with a risk-tolerant, forward-looking president are more likely to be internationalized. These effects are large in magnitude, as is the productivity effect, which provides a partial explanation as to why many productive firms are not internationalized. In addition, we find that productivity has an insignificant effect on firms exiting export markets, whereas presidential myopia increases the probability of exit. The evidence further suggests that a firm's initial export costs become sunk following its entry into export markets, which explains why many unproductive firms are internationalized.
AB - Recent heterogeneous-firm models of international trade suggest that productivity determines whether firms engage in export activity and foreign direct investment. In practice, however, many productive firms are not internationalized, whereas many unproductive firms are, which suggests that there are factors other than productivity that influence firms' internationalization. This study uses a unique panel data set for Japanese small and medium enterprises (SMEs) to examine whether the personal characteristics of a firm's president are factors in firm internationalization. We find that SMEs with a risk-tolerant, forward-looking president are more likely to be internationalized. These effects are large in magnitude, as is the productivity effect, which provides a partial explanation as to why many productive firms are not internationalized. In addition, we find that productivity has an insignificant effect on firms exiting export markets, whereas presidential myopia increases the probability of exit. The evidence further suggests that a firm's initial export costs become sunk following its entry into export markets, which explains why many unproductive firms are internationalized.
KW - Foreign direct investment
KW - Japan
KW - Risk and time preference
KW - Small and medium enterprises
KW - Trade
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U2 - 10.1016/j.jjie.2014.08.001
DO - 10.1016/j.jjie.2014.08.001
M3 - Article
AN - SCOPUS:84907807690
SN - 0889-1583
VL - 34
SP - 236
EP - 255
JO - Journal of The Japanese and International Economies
JF - Journal of The Japanese and International Economies
ER -
