on Global Sustainability Governance

Cuervo-Cazurra, A., Purkayastha, S., & Ramaswamy, K. 2023. Variations in the corporate social responsibility-performance relationship in emerging market firms. Organization Science (forthcoming).

Corporate social responsibility (CSR) and its impact on performance have generated a debate that has evolved across several perspectives (shareholder, stakeholder, resource-based, and contingency). Building on the resource-based and contingency perspectives, we shed new light on this debate by analyzing the impact of CSR on performance in emerging market firms, advancing the idea that CSR is a mechanism that helps address market failures. We first argue that CSR’s three constituent dimensions (environmental, social, and governance) vary in their impact on performance because each dimension has a different mitigating effect on market failures that hobble emerging market firms. Specifically, we contend that social CSR has a more significant effect on performance than either governance CSR or environmental CSR for emerging market firms, because the former helps build capabilities that more directly reduce the negative consequences of inadequacies in the availability of public goods and services that firms need to operate efficiently. We then provide additional depth to this idea by arguing that other mechanisms used for mitigating market failures in an emerging market context, namely firm-level business group affiliation and country-level government policy nudges, strengthen this differential influence of each of the three dimensions of CSR on performance. Analyses of a sample of 89 publicly traded Indian firms from 2007 to 2017 support these arguments.

Cuervo-Cazurra, A., Colpan. A. 2023. Owners' nonfinancial objectives and the diversification and internationalization of business groups. Corporate Governance: An International Review (forthcoming).

Building on agency theory, we separate business groups into five types based on their ultimate controlling owners (state, labor, family, mutual, and bank) and identify their nonfinancial objectives. We argue that their nonfinancial objectives result in diverging levels of diversification and internationalization of business groups across owner types. Specifically, we propose that state-owned and bank-owned business groups have a relatively high level of diversification, labor-owned and mutual-owned business groups have a relatively moderate level, and family-owned business groups have a relatively low level. We also argue that state-owned and labor-owned business groups have a relatively low level of internationalization, family-owned business groups have a relatively moderate level, and mutual-owned and bank-owned business groups have a relatively high internationalization level. We add depth to these ideas by proposing that pro-market reforms alter owners’ ability to achieve their nonfinancial objectives, leading to diverging changes in business groups’ diversification and internationalization across owner types. Specifically, we propose that following pro-market reforms, state-owned and bank-owned business groups experience a large decrease in their level of diversification, labor-owned and mutual-owned business groups see a moderate decrease, and family-owned business groups have a small decrease. We also argue that pro-market reforms lead state-owned and labor-owned business groups to have a small increase in their level of internationalization, family-owned a moderate increase, and mutual-owned and bank-owned to experience a large increase.

Cuervo-Cazurra, A., Grosman, A., & Wood, G. 2003. Cross-country variations in Sovereign Wealth Funds' transparency. Journal of International Business Policy (forthcoming).

We explore the drivers of the variation in sovereign wealth funds’ transparency across countries. Sovereign wealth funds have emerged as an important instrument for governments to invest and manage excess funds. However, despite serving similar needs, they vary significantly across countries. We integrate agency theory with the varieties of capitalism framework to propose that the country’s governance characteristics drive sovereign wealth funds’ multi-level agency problem, i.e., politicians acting as intermediaries between the citizens who are the nominal owners and the funds’ managers, leading to cross-country variations in the sovereign wealth funds’ characteristics. As a result, we propose that the home country’s type and quality of government and the origin of the wealth drive cross-country variations in the transparency of the sovereign wealth funds. We provide public policy suggestions for addressing these agency problems and improving sovereign wealth fund behavior.

Cuervo-Cazurra, A., Grosman, A., & Megginson, W. 2022. A review of the internationalization of state-owned firms and sovereignwealth funds: governments nonbusiness objectives and discreet power. Journal of International Business Studies, (forthcoming).

We review and bridge the literature on the internationalization of state-owned firms and sovereign wealth funds to provide a novel understanding of how government ownership affects foreign investments in three ways. First, we explain how state-owned firms and funds behave differently from private ones because they need to balance governments’ nonbusiness objectives and firms’ business goals. This results in competing predictions on whether government ownership helps or hinders internationalization due to particular nonbusiness objectives. Second, building on the review, we provide suggestions on how to extend research topics and theories of the firm by incorporating these nonbusiness objectives in the internationalization decisions in four areas: home government’s endowments, characteristics, and attitudes; host-country expansion’s support, influence, and impact; home- and host-country relationship conflicts, mediation, and disguising; and management’s orientation, opacity, and arbitrage. Third, we capture how governments may use state-owned multinationals and sovereign wealth funds to nudge host-country governments by introducing the concept of discreet power and the use of four strategies (recognition, values, development, and supremacy) to achieve it. This helps to outline the beginning of a unified approach to how governments use their foreign investments to achieve nonbusiness goals.

Montiel, I., Cuervo-Cazurra, A., Park, J., Antolín-López, R. and Husted, B.W. 2021. Implementing the United Nations’ Sustainable Development Goals in international business. Journal of International Business Studies, 52: 999-1030.

Building on the concept of externalities, we propose an explanation of how multinationals can contribute to the enactment of the United Nations’ Sustainable Development Goals as part of their ordinary investments. First,we suggest grouping the 17 Sustainable Development Goals into six categories based on whether they increase positive externalities – knowledge, wealth, or health – or reduce negative externalities – the overuse of natural resources, harm to social cohesion, or overconsumption. Second, we propose placing these categories within an extended value chain to facilitate their implementation. Third, we argue that multinationals’ internal investments in host-country subsidiaries to improve their competitiveness contribute to addressing externalities in host-country communities, while external investments in host communities to solve underdevelopment generate competitiveness externalities on host-country subsidiaries.

Cuervo-Cazurra, A., Dieleman, M., Hirsch, P., Rodrigues, S. B., and Zyglidopoulos, S. 2021. Multinationals’ misbehavior. Journal of World Business, 56 (5): 101244.

Multinational companies have been a force for good but, unfortunately, some misbehave. Our comprehensive literature review on multinationals’ misbehavior reveals three ideas. First, most research focuses on the interaction between the multinational and its institutional context, but insights vary depending on whether the drivers of misbehavior lie inside or outside the multinational. Second, we find a dearth of studies on social and environmental misbehavior, and an overemphasis on the study of governance dimensions, especially corruption. Third, we uncover three implicit assumptions that shaped past analyses: data availability, bad contexts leading good multinationals astray, and a focus on topical novelty.

Cuervo-Cazurra, A., & Li, C. 2021. State ownership and internationalization: The advantage and disadvantage of stateness. Journal of World Business, 56 (1): 101112. 

We critically review the literature on state-owned multinationals to clarify previous arguments and guide future studies. The content analysis of prior research reveals that state-owned firms differ from private firms in their internationalization: they are motivated by national strategic objectives, select more challenging countries, and use acquisitions more intensively despite adverse market reactions. The analysis also reveals conflicting predictions on the level of internationalization; some studies find that state-owned multinationals internationalize more while others find the contrary. We introduce one solution to these conflicts by classifying theories into two camps based on the balance between the costs and benefits of state ownership. One camp suggests a disadvantage of stateness (agency theory, resource dependence theory, and neo-institutional theory). Another camp promotes an advantage of stateness (economic development, resource-based view, and institutional economics). We conclude by outlining three promising relationships in the study of these firms: (1) relationships internal to state-owned multinationals and the balancing of stakeholder demands; (2)relationships between state-owned multinationals and government and the influence of the political system; and (3) relationships between home and host country governments and the impact of their dynamics on state-owned multinationals.

Kalasin, K., Cuervo-Cazurra, A., & Ramamurti, R. 2020. State ownership and international expansion: The S‐Curve relationship. Global Strategy Journal, 10(2): 386-418. 

We study how state ownership affects the international expansion of emerging‐market firms. Building on agency theory and the resource‐based view, we propose an S‐curve relationship: Firms with a low level of state ownership have a limited level of international expansion, those with a medium level of state ownership have an increasing level, and those with a high level of state ownership have a decreasing level. This S‐curve is the outcome of the interaction between the “hindering hand” of state ownership, arising from multilevel agency problems, and the “helping hand,” arising from state‐ownership advantages. Analyses of 674 publicly traded firms from 16 emerging markets support these ideas and reveal that the inflection points in the S‐curve appear at state‐ownership levels of 19 and 43%.

Cuervo-Cazurra, A. 2018. The evolution of business groups’ corporate social responsibility. Journal of Business Ethics, 153 (4): 997-1016.

In this theoretical paper, I analyze business groups’ corporate social responsibility (CSR). Building on economic thinking, I propose that the level and diversity of CSR investments of business groups evolve with the development of the country, as a result of the interaction of two drivers: the level of infrastructure deficiencies and the cost of negative externalities. I argue that in underdeveloped countries, business groups have high levels and low diversity of CSR investments, focusing on the social arena to compensate for infrastructure deficiencies. As countries implement pro-market reforms and become emerging economies, the level of CSR investments diminishes as business groups can rely on external providers and the government for supporting infrastructure, but CSR diversity increases to address the growing costs of negative externalities in the environmental and economic arenas. As countries further develop to become advanced economies, business groups’ level and diversity of CSR investments increase to prevent the high costs of negative externalities in the social, environmental, and economic arenas proactively.

Cuervo-Cazurra, A. 2016. Corruption in international business. Journal of World Business, 51: 35-49.

I analyze corruption in international business, presenting a critical assessment of the topic and providing suggestions for future research. I argue that corruption creates a laboratory for expanding international business studies because its illegal nature, the differences in perception about illegality, and the variation in the enforcement of laws against bribery across countries challenge some of the assumptions upon which arguments have been built, i.e., that managers can choose appropriate actions without major legal implications. Hence, I first provide suggestions for how to analyze the topic of corruption in future studies by analyzing the types, measures, causes, consequences, and controls of corruption. I then provide suggestions for how to extend leading theories of the firm by using corruption as a laboratory that challenges some of the assumptions of these theories: extending agency theory by analyzing the existence of unethical agency relationships; extending transaction cost economics by analyzing illegal transaction costs minimization; extending the resource-based view by studying corporate social irresponsibility capability; extending resource dependency by analyzing the ethical power escape; and extending neo-institutional theory by studying illegal legitimacy.

Cuervo-Cazurra, A. Inkpen, A., Musacchio, A. and Ramaswamy, K. 2014. Governments as owners: State-owned multinational companies. Journal of International Business Studies, 45: 919-942.

The globalization of state-owned multinational companies (SOMNCs) has become an important phenomenon in international business (IB), yet it has received scant attention in the literature. We explain how the analysis of SOMNCs can help advance the literature by extending our understanding of state-owned firms (SOEs) and multinational companies (MNCs) in at least two ways. First, we cross-fertilize the IB and SOEs literatures in their analysis of foreign investment behavior and introduce two arguments: the extraterritoriality argument, which helps explain how the MNC dimension of SOMNCs extends the SOE literature, and the non-business internationalization argument, which helps explain how the SOE dimension of SOMNCs extends the MNC literature. Second, we analyze how the study of SOMNCs can help develop new insights of theories of firm behavior. In this respect, we introduce five arguments: the triple agency conflict argument in agency theory; the owner risk argument in transaction costs economics; the advantage and disadvantage of ownership argument in the resource-based view (RBV); the power escape argument in resource dependence theory; and the illegitimate ownership argument in neo-institutional theory. After our analysis, we introduce the papers in the special issue that, collectively, reflect diverse and sophisticated research interest in the topic of SOMNCs.

Aguilera, R., and Cuervo-Cazurra, A. 2009. Codes of good governance. Corporate Governance: An International Review, 17(3): 376-387.

We review the recent developments in the area of codes of good governance, a set of best practice recommendations regarding the behavior and structure of the board of directors. Our review of the literature on codes of good governance highlights their rapid spread around the world and how academic research has lagged behind in analyzing this topic. Despite the criticism that the codes' voluntary nature limits their ability to improve governance practices, codes of good governance appear to have generally improved the governance of countries that have adopted them, although there is a need for additional reforms. Unfortunately, research on codes of good governance has developed in isolation with little cross‐fertilization across the different disciplines. We propose a multi‐level framework to discuss three main topics that have emerged within the codes literature: the motivations behind the diffusion of codes across countries and its implications for convergence of corporate governance practices; the content of the codes and their “comply or explain” dimension; and the relationship between code compliance and firm performance. We conclude by proposing four areas of future research. Code development, adoption, and compliance are directly related to issues surrounding the governance of the firm, and in particular to all the interactions that a director has inside and outside the firm. Codes are regulations that emerge from policy‐making negotiations between multiple stakeholders, such as the state (via the stock market regulators) and the investors. 

Cuervo-Cazurra, A. 2008. The effectiveness of laws against bribery abroad. Journal of International Business Studies, 39(4): 634-651.

I analyze the effectiveness of laws against bribery abroad in inducing foreign investors to reduce their investment in corrupt countries. The laws are designed to reduce the supply of bribes by foreign investors by increasing the costs of bribing abroad. Such an increase in costs will make foreign investors more sensitive to corruption and induce them to reduce their investments in corrupt countries. However, I argue that these laws need to be implemented and coordinated in multiple countries to become effective. Otherwise, investors in a country will have incentives to bypass them when competitors from other countries are not bound by similar legal constraints. The empirical analysis shows that investors from countries that implemented the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction of 1997 reduced their investments in corrupt countries. Investors from the US, which were bound by the Foreign Corrupt Practices Act of 1977, also reduced investments in corrupt countries, but only after the OECD Anti-Bribery Convention was in place. 

Cuervo-Cazurra, A. 2008. Better the devil you don’t know: Type of corruption and FDI in transition economies. Journal of International Management, 14(1): 12-27.

Corruption has a negative impact on foreign direct investment (FDI). However, transition economies show high levels of corruption and also high levels of FDI. I argue that it is not the level but rather the type of corruption that affects FDI in transition economies. Pervasive corruption, or corruption that is widely present, acts as a deterrent to FDI because it increases the known costs of investing, while arbitrary corruption, or corruption that is uncertain, does not have such a deterring influence because it becomes part of the uncertainty of operating in transition economies. In transition economies, investors prefer to deal with an unknown evil – arbitrary corruption – rather than a known one – pervasive corruption.

Cuervo-Cazurra, A. 2006. Who cares about corruption? Journal of International Business Studies, 37(6): 803-822.

This paper examines the impact of corruption on foreign direct investment (FDI). It argues that corruption results not only in a reduction in FDI, but also in a change in the composition of the country of origin of FDI. It presents two key findings. First, corruption results in relatively lower FDI from countries that have signed the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This suggests that laws against bribery abroad may act as a deterrent against engaging in corruption in foreign countries. Second, corruption results in relatively higher FDI from countries with high levels of corruption. This suggests that investors who have been exposed to bribery at home may not be deterred by corruption abroad, but instead seek countries where corruption is prevalent. 

Cuervo-Cazurra, A. 2006. Business groups and their types. Asia Pacific Journal of Management, 23(4): 419-437.

We clarify what business groups are and analyze their various types. We first distinguish business groups from other types of firm networks based on the strategic relationships among companies; business groups are defined as those networks that exhibit unrelated diversification under common ownership. We then separate business groups into three types based on their ownership: family-owned, widely-held, and state-owned. We argue that each type has different agency costs and diversification logics. As a result of these differences, their performance varies, with family-owned business groups outperforming widely-held ones, and these in turn outperforming state-owned business groups.

Aguilera, R., and Cuervo-Cazurra, A. 2004. Codes of good governance worldwide: What is the trigger? Organization Studies, 25(3): 417-446.

This article examines the mechanisms underlying the worldwide diffusion of organizational practices. We suggest that the two main theoretical explanations in the diffusion literature, efficiency, and legitimation, can be complementary. More specifically, we argue that endogenous forces seek to enhance the efficiency of existing systems, while exogenous forces seek to increase legitimation. To assess our argument, we explore the worldwide diffusion of codes of good governance. These codes are a set of ‘best practice’ recommendations regarding the behavior and structure of a firm’s board of directors issued to compensate for deficiencies in a country’s corporate governance system regarding the protection of shareholders’ rights. We have collected data on codes of good governance for 49 countries. We operationalize efficiency needs in terms of the characteristics of shareholder protection, and legitimation pressures in terms of government liberalization, economic openness, and the presence of foreign institutional investors. Our analysis supports the argument that both efficiency needs and legitimation pressures lead to code adoption. In addition, our empirical results show that countries with legal systems with strong shareholder protection rights tend to be more prone to develop codes, possibly for efficiency reasons. This article contributes to organization theory by illustrating that the diffusion of codes fosters both cross-national corporate governance convergence as well as some degree of country hybridization, particularly depending on the type of code issuer.