Ballesteros, Luis, Catherine Magelssen, and Meghana Ayyagari. “Business internationality and the performance consequences of economic disintegration: Evidence from Brexit.” 2019.
Multinationalism helps firms access suppliers and consumers spatially dispersed. It can increase labor productivity (Martin et al. 2017), administrative capacity (Acemoglu et al. 2007), knowledge spillovers (Alcacer and Chung 2007, Javorcik 2004), innovation (Knott and Turner 2019), and foster economies of scale (Alfaro et al. 2018) and competitive advantages (Berry 2014). A line of research has also associated multinationalism with risk diversification. Hence, multinational firms cope with shocks better than domestic firms such as natural disasters (Oetzel and Oh 2014) or financial crises (Aghion et al. 2016).
The general discourse in which these arguments have flourished and been tested is the continuous globalization of markets and production. In recent years, however, antiglobalization processes have resulted in actual or potential threats to international trade and investment. One can argue that multinational firms may be more vulnerable than domestic firms to suffer the consequences of economic disintegration (Boehm 2014). Theoretically, this is unclear because multinational firms may adjust easier to the closeness of national markets via reallocation of resources and a higher ability to move operations to a different country (Alfaro and Chen 2012, Mata and Woerter 2013).
We seek to solve this debate by focusing on the case of Brexit. The Brexit Referendum in 2016 is not a direct shock to economic integration, but it is a rise in environmental uncertainty whose effect on the Global Economic Policy Uncertainty (Baker et al. 2016, Davis 2016)is higher than any other systemic shock in recent history (see graph). Uncertainty shocks can drop investment, labor demand, productivity, and growth (Baker and Bloom 2013).
Ballesteros, Luis, Heather Berry, and Aseem Kaul. “Market turbulence and the sustainability of entrepreneurship”. 2018.
The effects of uncertainty shocks on entrepreneurship are unknown. On the one hand, uncertainty shocks are associated with prominent levels of business mortality. The Federal Emergency Management Agency estimates that 40% of small businesses do not reopen after being hit by a natural disaster and 90% will fail within a year unless they can resume operations in less than a week and studies have shown that uncertainty shocks reduce output, employment, and productivity and suggest that business activity declines even in countries not directly hit by a disaster due to economic interdependencies. On the other hand, other studies suggest that uncertainty shocks may be beneficial to entrepreneurship. Building off the idea of ‘destructive creation,’ scholars have argued that uncertainty shocks may challenge established incumbents and open up opportunities for new business creation and radical innovation. This project seeks to resolve this debate through novel evidence on the relationship between uncertainty shocks, risk preferences, and entrepreneurship. We intend to explore three related research questions: a) How do uncertainty shocks affect both firm failure and founding, and therefore the overall level of entrepreneurship?; b) how do these effects differ across sub-populations of entrepreneurial firms (e.g., venture-backed vs. other firms, low-tech vs. high-tech industries)?; and c) what role do changing risk preferences play in driving these effects?
Ballesteros, Luis. “Geographical diversification and performance shocks“. 2019.
This study evaluates two competing effects that geographical expansion has on an organization’s exposure to systemic risk and its ability to manage systemic risk. The first one is a central tenet of your study. Subsidiary collocation facilitates the logistical response to major shocks via the sharing of information, know-how, and material resources. On the other hand, little geographical diversity raises the corporation’s total exposure to some types of systemic risk. That is, the larger the concentration of the economic share of the corporation, the lower the diversification of systemic risk. Thus, whether geographical collocation or diversification increases the ability of the organization to manage systemic risk is not clear. This relationship is critical for the study of market entry and expansion and has important implications for managerial practice given the increasing role of systemic risk on organizational performance and sustainability.
A key selling point of the study is that the role of systemic risk is understudied in the organizational literature. There has been little research that, explicitly studies risk in the organizational literature, and the neglect is even larger for systemic risk. This is puzzling given that the cornerstones of the literature are decision making and learning. Scholars concur on the idea that what separates organizations and determines an organization’s sustainability and performance is the efficiency of its decision making and learning. Given that market operation is necessarily an activity that involves risk exposure and management of systemic risk, studying the mechanisms and conditions under which an organization mitigates or prevents, cope with, and recovers from the effects of systemic shocks and learns over time from such experience it is central for the organizational literature.
Ballesteros, Luis. “How Fast Liability of Foreignness Changes: A Study of the Effect of National Shocks on the Sentiment of Bilateral Relations and Market Entry“. 2018.
The literature that studies the country-specific determinants of market entry predominantly approaches the institutional environment as relatively stable. However, uncertainty shocks are known to generate systemic disruptions that reshape norms, values, and rules which otherwise change incrementally. It is during these disruptions when local perceptions of geopolitical and economic conflict or cooperation are comparatively vulnerable to be deviated by the behavior of strategic foreign actors. Particularly, the actions undertaken by foreign national governments to help the shock-affected country may reduce the negative local perceptions of firms that are co-national to the responding government. The liability of foreignness that these firms may be mitigated, at least temporarily and thus increasing their opportunities for market entry.
Ballesteros, Luis. “Risk preferences and entrepreneurship: Evidence from a national survey.” 2019.
I explore the relationship between risk preferences and business creation. I use a longitudinal, multi-thematic survey representative of the Mexican population at the national, urban, rural and regional level to combine: i) the identification of changes in risk preferences over time, the ii) the exposure to community-level phenomena, and iii) administrative data on economic activity. Using the instrumental validity of natural disasters, I document that comparatively low levels of risk aversion relate with high rates of entrepreneurship.
Ballesteros, Luis and Aseem Kaul. “Is altruistic pro-social behavior more socially valuable than strategic pro-social behavior?” 2018.
This study connects the antecedents of corporate philanthropy and its consequences. We tackled the question of whether corporate philanthropy that is driven by altruism generates greater value for its beneficiary than corporate philanthropy than is driven by strategic considerations. The findings of a quasi-experimental design suggest that disaster-affected countries received greater average donations from firms whose behavior had, arguably, comparatively strong strategic implications (i.e., these firms have operations in the affected country, their headquarters-country is economically proximate and culturally distant to the affected country, and their donation was top-management driven) than from counterfactual firms whose behavior is, arguably, comparatively altruistic (i.e., these firms do not have operations in the affected country, their headquarters-country is economically distant and culturally proximate to the affected country, and their donation is employee-driven). This suggests that stressing altruism or, more broadly, the social preferences behind corporate pro-social behavior, as opposed to its strategic value, may result in an economic loss from the perspective of the beneficiary of firm action.
Luis Ballesteros 