LUBS590101M Quantitative Methods for International Business Semester Two 2022/2023

Question 1.

Expatriates are employees of multinational enterprises (MNEs), who are sent to the foreign  subsidiary  on  a  temporary  basis  to  complete  a  time-based  task  or  to accomplish an organisational goal. A research project is carried out in UK to examine the expatriates’ host country language proficiency and their social categorisation – as outgroup   members   –   by   host   country   national   (HCN)   employees   in   foreign subsidiaries.

The UK researchers conducted the study in Japan, a very linguistically challenging environment for expatriates due to particularities in grammar, syntax, and writing style. The  difficulty of learning  Japanese  thus  allows for  a  high  degree  of  variation  in expatriate language proficiency.

The data was collected through online survey from a wide range of foreign subsidiaries on the following criteria: HCNs working full-time in privately-owned subsidiaries of foreign MNCs in the Tokyo region and having an expatriate co-worker in the same functional department. Approximately 300,000 HCNs met the criteria.

The survey was translated from English to Japanese. Participation in the online survey was voluntary, and respondents received small incentives for participation. Among 1,678 HCNs who were randomly selected by the researchers, 1,498 participated and completed the survey (89% response rate).

Required:

Define the population of the research project. Evaluate the applied sampling strategy and the representativeness of the sample. Propose an alternative sampling strategy and justify its effectiveness. [20 marks]

Figure 2.2 Scatter plot between (host- country) political instability and foreign sales

Figure 2.3 Scatter plot between (host- country) GDP growth and foreign sales

Question 3.

Families represent the dominant form of firm ownership in much of the developing world. However, it is still not clear how this influences equity ownership strategies when firms venture abroad. A project thus aims to examine the effects of board composition and family ownership on the equity ownership strategies of multinational enterprises from emerging markets (EM MNEs) in their affiliates.

Six hypotheses are developed:

Hypothesis 1a. The ratio of family directors will be negatively associated with the extent of equity ownership of EM MNE affiliates.

Hypothesis 1b. The ratio of inside directors (that is directors who are employed by the firm, but not family members), will be negatively associated with the extent of equity ownership of EM MNE affiliates.

Hypothesis  1c.  The  ratio  of  independent  directors  (that  is,  neither  family members nor employed by the firm), will be positively associated with the extent of equity ownership of EM MNE affiliates.

Hypothesis  2a.  Institutional  distance  strengthens  the  negative  relationship between the ratio of family directors and the extent of equity ownership of EM MNEs in their affiliates.

Hypothesis  2b.  Institutional  distance  strengthens  the  negative  relationship between the ratio of inside directors and the extent of equity ownership of EM MNEs in their affiliates.

Hypothesis  2c.   Institutional   distance  weakens   the   positive   relationship between the ratio of independent directors and the extent of equity ownership of EM MNEs in their affiliates.

The hypotheses were tested using a sample of 374 foreign affiliates of 71 publicly listed Turkish MNEs on the Istanbul Stock Exchange (BIST). The results are reported in Table 3.1.

The variables involved in the analysis include:

.    Equity ownership of EM MNEs in foreign affiliates , measured by the proportion of equity shareholding held by the Turkish MNEon its affiliates operating in host country;

.    Ratio of family directors, measured by the number of family directors divided by the total number of board directors;

.    Ratio of inside directors, measured by the number of inside directors divided by the total number of board directors;

.    Ratio  of  independent  directors,  measured  by  the  number  of  independent directors divided by the total number of board directors;

Table 3.1 Regression results

.    Institutional distance, the differences of the institutional environment between EM  MNE and  its affiliates  in  11  sub-items  (i.e.,  property  rights,  intellectual property  rights,  judicial   independence,  burden  of  government   regulation, efficiency of legal framework, transparency of government policymaking, ethical behaviour of firms, strength of auditing and reporting standards, efficacy of corporate  boards,  quality  of  management  schools,  and  local  availability  of specialized research and training services);

.    Linguistic distance, the differences of languages between the EM MNE and its affiliate;

.    Cultural distance, the differences of national culture between the EM MNE and its affiliate;

.    Country risk, measured by CPEFR risk rating including political, financial, and economic risks.

You are required to answer the following questions:

a) Write down the statistical model for Model 4. [2 marks]

b)  Suggest  whether  the  results  in  Table  3.1  are  consistent  with  any  of  the  six hypotheses. Please support your answer with the detailed analysis (in terms of the directions and statistical significances of the key explanatory variables ’ coefficients). [8 marks]

c) The CEOs of family firms in the emerging markets would like to knowhow the results can help their equity ownership strategies when venturing broad. How would you respond? [12 marks]

Question 4.

A  research team is  investigating the  impact  of  internationalisation  speed  on firm performance.  Specifically,  the  speed  of  internationalisation  is  examined   in  two dimensions, breadth and depth. The breadth of internationalisation speed describes the increase in the number of foreign markets where an MNE operates within one year,

The depth of internationalisation speed describes the increased commitment to the existing foreign markets where an MNE operates by investing more managerial and non-managerial resources within one year,

NumbeT OffOTeign subsidaTies t

NumbeT Of cOuntTies t              一 1.

NumbeT Of cOuntTies t一1

A  sample  of  100  firms  over  5  years  (2016  to  2020)  is  collected,  including  the information below:

.    Firm performance (ROA);

.    Breadth of internationalisation speed;

.    Depth of internationalisation speed;

.    CEO tenure (the number of years the CEO has been appointed);

.    Firm age (the number of years since the firm’s foundation);

.    Firm size (the natural logarithm of the number of employees).

.    Liquidity ratio (dividing the firm’s current assets by its current liability)

.    Y2020 (dummy variable, 1 if in Year 2020 and 0 otherwise)

.    Y2019 (dummy variable, 1 if in Year 2019 and 0 otherwise)

.    Y2018 (dummy variable, 1 if in Year 2018 and 0 otherwise)

.    Y2017 (dummy variable, 1 if in Year 2017 and 0 otherwise)

The researchers conduct a linear regression analysis. The results are reported as follows:

Figure 4.1 Scatter plot of ROA and the breadth of internationalisation speed

Figure 4.2  Scatter plot of  ROA and the depth of internationalisation speed

Figure 4.3 Scatter plot (̂(y) against e)

Figure 4.4 Residual histogram

Figure 4.5 P-P plot

Table 4.1 Descriptive statistics

Table 4.2 Correlations

Table 4.3 Model Summary

Table 4.4 Coefficients

You are required to answer the following questions:

a)  Evaluate the use of the linear regression model in explaining the causal relationships between variables. Please include all the linear regression assumptions in your answer.                        [20 marks]

b) Discuss the practical implications of the study from the perspective of the managers. [12 marks]

c) The research team categorises the dependent variable into a dummy variable, with a value of 1 if the firm’s ROA is positive and a value of 0 otherwise, and run a logistic regression. The result is reported below. Compare the findings in Tables 4.4 and 4.7. [4 marks]