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Effects of presidents’ characteristics on internationalization of small and medium firms in Japan

Yasuyuki Todo and Hitoshi Sato ()

Journal of the Japanese and International Economies, 2014, vol. 34, issue C, 236-255

Abstract: 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.

Keywords: Trade; Foreign direct investment; Small and medium enterprises; Risk and time preference; Japan (search for similar items in EconPapers)
JEL-codes: F19 F21 (search for similar items in EconPapers)
Date: 2014
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