CEOs with international experience under weak institutions

Abstract

In the context of the globalization of human capital, this thesis examines the role of CEOs with international experience, known as returnee CEOs. The first essay argues that that CEOs’ international expertise is acquired at the opportunity cost of local social capital, such as political and business ties, which is more critical than expertise in transition economies with weak legal institutions. Based on the sample of 2847 CEOs appointments in China, I find that returnee CEOs are associated with inferior performance, lower market reactions to appointment announcements and an adverse regulatory environment. The negative relation disappears when social capital is acquired, regional legal institutions are strong or returnees’ international expertise is in demand. Exploiting an exogenous increase in the supply of returnee talent as a result of new provincial policies, I find the results consistent. The second essay examines the returnee CEOs in newly public entrepreneurial firms that are in transition period. I propose that returnee CEOs possess the tacit knowledge of foreign advanced legal institutions, which can help entrepreneurial firms overcome the formalization challenges they face in getting listed. The results based on 355 newly public Chinese entrepreneurial firms indicate that returnee CEOs, especially those who have returned from countries with advanced legal institutions are associated with superior post-IPO performance. In addition, foreign venture capitals (VCs) are found to strengthen the positive impact of returnee CEOs, especially when both VCs and CEOs are from countries with advanced institutions. In the third essay, I examine returnee CEOs’ managerial decision of listing location. Based on the sample of IPOs of Chinese entrepreneurial firms, I find that returnee CEOs are more likely to undertake foreign IPOs, especially for entrepreneurial firms operating in high-tech industries, until the credibility crisis of US-listed Chinese firms was triggered by Muddy Water Research in 2011. Overall, this thesis provides original evidence on the impact of international experience of CEOs and makes important implication on the benefits realization of brain gains in countries with weak legal institutions.