Discussion Paper Series No. 214
Top Management Characteristics of Foreign MNC
Affiliates and Affiliate Performance in Japan:
Knowledge-Based and Upper Echelon Perspectives

SEKIGUCHI Tomoki

Osaka University

Ralf BEBENROTH

Kobe University

Donghao LI

Wakayama University
January

2008

The Discussion Papers are a series of research papers in their draft
form, circulated to encourage discussion and comment. Citation anduse of such a paper should take account of its provisional character.
In some cases, a written consent of the author may be required.

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Top Management Characteristics of Foreign MNC Affiliates and Affiliate Performance inJapan: Knowledge-Based and Upper Echelon Perspectivesi

Tomoki Sekiguchi
Graduate School of Economics, Osaka University
1-7 Machikaneyama, Toyonaka
Osaka 560-0043 Japan
Tel: +81-6-6850-5229, Fax: +81-6-6850-5277
Email: tomoki@econ.osaka-u.ac.jp

Ralf Bebenroth
Research Institute for Economics and Business Administration
Kobe University
2-1, Rokodai, Nada-ku, Shinkan 1307
Kobe 657-8501 Japan
Tel: +81-(0)78-803-7021
Email: Ralfbebenroth@hotmail.com

Donghao Li
Wakayama University
930 Sakaedani, Wakayama City
640-8510 Japan
Phone: +81-73-457-7670 , Fax ＋81-73-457-7671
Email: donghaoli@hotmail.com

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Top Management Characteristics of Foreign MNC Affiliates and Affiliate Performance inJapan: Knowledge-Based and Upper Echelon Perspectives

ABSTRACT
Drawing from the knowledge-based view of MNCs and the upper echelon perspective, we examine
the relationship between top management characteristics of MNC affiliates and affiliate performance.
Using a sample of 643 foreign MNC affiliates operating in Japan, we found that when the length of anaffiliate operation was shorter, the affiliate performed better under the expatriate managing director
rather than the Japanese manager. We also found that when the size of an affiliate was larger and thelength of operation was shorter, the affiliate performed better under the larger rather than smaller
proportion of expatriates in top management teams. Implications for research and practice of top
management staffing of MNC foreign affiliates are discussed.

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Top Management Characteristics of Foreign MNC Affiliates and Affiliate Performance inJapan: Knowledge-Based and Upper Echelon Perspectives
INTRODUCTION
For multinational corporations (MNCs) that operate in different countries, performance of
their foreign affiliates is critical for the success of the entire MNCs. Among many factors that would
affect performance of MNC foreign affiliates, top management characteristics of the MNC affiliates
are the major focus of our study. Specifically, by focusing on the Japanese context, we investigate theimpact of the nationality of individual managing directors and top management teams (TMT) of MNC
affiliates on their performance in Japan, with the consideration of the length of affiliate operation andsize of the affiliate that may moderate such an impact.
International business researchers, especially researchers in the field of international humanresource management have investigated the determinants of whether MNCs send their expatriates orfind local employees to fill top management positions of their affiliates operating in foreign countries(e.g., Bebenroth, Li & Sekiguchi, in press; Belderbos & Heijltjes, 2005; Gong, 2002, 2003; Harzing,
2001; Tan & Mahoney, 2006; Thompson & Keating, 2004). However, few researchers have examinedthe effects of such MNCs’ staffing practices on affiliate performance, except for Gong (2003) who
found that the positive effect of expatriate staffing on MNC affiliates increases when cultural distanceis high, but that effect decreases over time. Thus, our study attempts to contribute to the literature on
MNCs by conducting a theoretical and empirical investigation on staffing of MNC affiliates and theirperformance. In doing so, we theoretically draw from the knowledge-based view of the firm (e.g.,
Nickerson & Zenger, 2004) and the upper echelon perspective (Hambrick & Mason, 1984; Hambrick,2005) in order to understand the mechanism through which top management characteristics of MNCs’
foreign affiliates influence affiliate performance.
Our study focuses on a single country, Japan as a research context and examines theaffiliates of MNCs from various countries operating within its borders. Japan is a good research site
because MNCs from many countries have their affiliates operating there. Thus, contrary tomulti-country studies that only use samples of MNCs from one or two home-countries (e.g., Japanese
MNCs), we examine a sample of MNCs coming from many countries to Japan, which would

4

strengthen the generalizability of findings. Also, the single-country research design or "many-to-one"
research design has some advantages over the multi-country research design (e.g., Harzing, 2001)
such as the capability for controlling many variables (Bebenroth et al., in press).
THEORETICAL BACKGROUND
The knowledge-based view of MNCs emphasizes that knowledge flow within MNCs or
knowledge transfer between the parent MNCs and their foreign affiliates is the key for the success of
the affiliate operation. The knowledge-based view (Grant, 1996) stems from resource-based view ofthe firm (Barney, 1991) which proposes that firm performance is largely determined by the firm's
resources that are valuable, rare, inimitable and nonsubstitutable. Thus, knowledge that is createdwithin MNCs is considered to be a critical part of the firm’s resources that are the source ofsustainable competitive advantage, and it should flow or be transferred between parent MNCs andtheir affiliates. The knowledge flow and transfer may not only be unidirectional such as from parent
MNCs to their affiliates but also more cyclical in nature such that MNC affiliates receive firm-specificknowledge from the parent MNCs and parent MNCs receive market or local specific knowledge fromtheir affiliates. This kind of cyclical and reciprocal knowledge flow will enable MNCs to develop
effective operational strategy of their foreign affiliate incorporating both MNC firm-specificknowledge and market-based or local-specific knowledge on where the affiliate is operating (Dowes& Thomas, 2000). Expatriate managers will play a critical role in this cyclical and reciprocal
knowledge transfer process. For MNCs, expatriation remains a viable staffing strategy even though it
is costly because the expatriation facilitates the communication process between the parent locationand its affiliates, as well as across affiliates, aids in establishing country linkages, and increases thefirm’s understanding of international operations (Dowling, Schuler, & Welch, 1994). Generally,
consistent with the knowledge-based view, the expatriation literature frequently cites the need totransfer resources abroad as a primary reason for expatriating parent-country nationals to foreign
affiliates (Dowling et al., 1994).
The upper echelon perspective emphasizes the role of top management teams (TMT) that
influence the firm’s strategy, operation and subsequent performance (Hambrick & Mason, 1984;
Hambrick, 2005). Evolved from the notion of dominant coalition in behavioral theory of the firm

5(Cyert & March, 1963), the upper echelon perspective suggests that the corporate CEO alone may nothave strong effects on corporate performance. Rather, this perspective suggests that the group of top
managers, or top management teams (TMT) will have larger effects on corporate strategy, operationand performance. A group of top managers such as TMT members will act based on their personalized
cognitive frames, which are a function of their experience, values, and personalities. Thus, theirdemographic background is one of the important factors that predict TMT member behaviors thatwould greatly influence the performance of the entire organization.
Based on the upper echelon perspective, our focus is the characteristics of top management
positions of MNC affiliates rather than their entire workforce level as key determinants of affiliate
performance. Our study not only examines the characteristics of single managing directors or CEOs
but also the characteristics of top management teams (TMT) of MNC foreign affiliates. In terms of thecharacteristics of top management of MNC affiliates, we focus on the nationality of the managing
director (i.e., whether the position is held by an expatriate or a host country national) and the
proportion of expatriate managers in TMT of the affiliate.
HYPOTHESESAs discussed previously, one of the determinants of MNC foreign affiliates’ performance,
especially in their early stages of operation is the transfer of knowledge, or more broadly, transfer ofcritical resources that have been developed within the MNCs for a sustainable competitive advantage(Barney, 1991). Knowledge-based view of the MNCs suggests that because such knowledge and otherresources are often firm specific, expatriate employees from MNCs’ home countries play a criticalrole as “transmitters” of such knowledge and other resources. In addition, expatriate managers who
fill the top management positions such as a managing director and other top-level managers will not
only transfer and exchange critical knowledge and resources between affiliates and rest of the MNCs,
but also closely correspond with their headquarters in order to monitor and control the foreign
affiliates for desirable operations. Because the upper echelon perspective (Hambrick & Mason, 1994)
suggests that TMT often have a strong effect on the firm’s strategy, operation, and eventually
performance, we argue that in the early stage of MNC affiliate operation, namely, when the MNC
affiliates need exchange and transfer of knowledge with parent MNCs to be successful, expatriate

6

managers who fill top management positions of the affiliates (managing director and other top
manager positions in TMT) will contribute to the performance of the affiliate more than local
employees who fill the equivalent positions.
On the other hand, as the length of affiliate operation increases and business structure andoperational processes become established and routinized, knowledge transfer and exchange between
affiliates and the rest of MNCs may become relatively less important. It might be due to theorganizational leaning effect of the MNC affiliates that they internalize the critical knowledge of the
MNCs and establish the context-specific capabilities to transform such knowledge into the operationalroutines that will result in high performance. This means that when the age of the affiliate becomesolder, contributions of expatriate top managers to the operation and performance of MNC affiliates
will become less salient compared with the early stages of operation, and host country nationals who
fill the top management positions of the affiliates and who also have obtained firm specific knowledgeof the MNCs, may become able to manage the entire affiliate operation effectively. In addition, heavy
reliance of expatriate top managers may cause many problems for affiliate performance in the laterstage of affiliate operation such as the motivation problem due to the lack of advanced opportunities
for local employees and the damage of local legitimacy (Gong, 2003). Host country nationals who
may have more skills to manage local employees and more likely to receive local legitimacy may
contribute to better affiliate performance. Therefore, we argue that as the age of MNC affiliates
becomes older, the impact of expatriate managers who fill top management positions on affiliate
performance will become weaker.
In summary, we predict that the age of foreign MNC affiliates, or the length of affiliate
operation, will moderate the relationship between the characteristics of top management of MNC
affiliates and affiliate performance. That is, expatriate top managers will have a stronger effect onaffiliate performance when the affiliate is younger and such effect will become weaker as the affiliate
gets older. Gong (2003) empirically tested and obtained supporting results for the similar hypothesis
using the sample of Japanese MNCs that operate in different foreign countries. However, Japanese
MNCs, are considered to rely heavily on sending expatriates to foreign operations and thegeneralizability of his findings may be questionable. We do not limit the sample of MNCs to Japanese7

companies and attempt to constructively replicate and extend his findings to the MNCs from manydifferent home countries including North American, European and other Asian countries.
Hypothesis1a. Affiliate age will moderate the relationship between the nationality of affiliate
managing director and affiliate performance in such a way that the younger the affiliate,
the stronger the positive impact of the expatriate managing director on affiliate
performance is.
Hypothesis 1b. Affiliate age will moderate the relationship between the proportion of expatriate
board members and affiliate performance in such a way that the younger the affiliate, thestronger the positive impact of the larger proportion of expatriate board members on
affiliate performance is.

We argue that affiliate size is also an important factor that will interact with the characteristics
of MNC affiliate top management and the length of affiliate operation. To our knowledge, past
research in this field has not fully incorporated affiliate size into the theoretical framework tounderstand the mechanism in which MNC affiliate top management influences affiliate performance.
The theory of executive job demands (Hambrick, Finkelstein, & Mooney, 2005), a part of the upperechelon perspective, suggests that three factors, (1) task challenges (e.g., difficult strategic conditions),(2) performance challenges (e.g., demanding owners and board), and (3) executive aspirations (strong
personal desire to deliver maximum performance) will cause heavier executive job demands, and thestrategic choice and behaviors of top managers under such heavy executive job demands will reflect
their background and dispositions. In case of MNC foreign affiliates, we argue that as affiliate size
becomes greater, the executive job demands of the affiliate top management will also increase. This isbecause increasing MNC affiliate size will cause the increase of coordination complexity, greater needfor managerial experience and expertise, and growing interdependence between the affiliate and therest of MNCs (Johnston & Menguc, 2007), which increase task challenges. Also, performance oflarger sized foreign affiliates of MNCs may be critical for MNCs as a whole, and demands for higher
performance from their headquarters may also be high. Furthermore, top management members ofbigger affiliates may have stronger sense of mission and stronger aspiration for maximum
performance because of the criticality of larger MNC affiliates for the overall performance of the
MNCs. Therefore, in such a high executive job demands situation, the relationship between top
management characteristics of MNC affiliates and their operation and performance will become

8greater.
In Hypothesis 1, we argued that the impact of expatriate top managers on affiliate
performance is greater when the affiliate is younger. Here, we further argue that this interactive effectof affiliate age and expatriate top managers will be stronger when affiliate size is bigger because
executive job demands are heavier when affiliate size is large, which strengthens the relationshipbetween top management characteristics and affiliate performance. In other words, affiliate size will
moderate the interaction effect of affiliate age and expatriate top managers on MNC affiliate
performance, indicating the existence of a more complex three-way interaction between affiliate size,
affiliate age, and affiliate top management characteristics in determining affiliate performance.
Hypothesis 2a. Affiliate size will moderate the interaction between affiliate age and thenationality of affiliate managing director on affiliate performance in such a way that theinteraction is stronger for a larger affiliate.
Hypothesis 2b. Affiliate size will moderate the interaction between affiliate age and the
proportion of expatriate board members on affiliate performance in such a way that theinteraction is stronger for a larger affiliate.

METHODS
SampleThe Gaishikei-kigyo soran (Toyo Keizai Shimposha, 2003) was used to obtain data to test
our hypotheses. From this database, we identified 643 Japan-based foreign MNC affiliates that havethe necessary information for our study such as top management characteristics and affiliate
performance. Industries in which the affiliates operate included finance and insurance (16.8%),
medical and chemistry (14.5%), machine (12.9%), wholesale, (8.9%), service (6.5%), automobile(6.4%) and others. Nationalities (home countries) of MNCs included USA (49.5%), Germany (12.0%),
UK (8.4%), France (5.8%), Switzerland (5.0%), South Korea (3.0%), Netherlands (2.2%), Sweden(1.7%), Taiwan (1.6%), Denmark (1.4%), China (1.2%), Italy (1.1%), and others. The average numberof top management teams was 6.56, and the average ownership ratio was 75%. The average length ofaffiliate operation in Japan was 27 years.
Measurements
Managing directors and board members nationalities were judged by examining their names.

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Past research that used this method for Japanese sample yielded a high level of reliability (e.g., 97%
to 100% interrater agreement) because of the relative ease with which Japanese names can bedifferentiated from Western and other Asian names (Gong, 2003; Harzing, 2001). Based on the
judgment, the nationalities of managing directors were dummy coded with 1 for expatriates(non-Japanese) and 0 for host country nationals (Japanese). The proportion of expatriate top managers
in TMT was calculated by dividing the number of expatriate top managers by the number of all top
managers in TMT.
Affiliate age was measured as the number of years of operation since the affiliate wasestablished in Japan. Affiliate size was measured in terms of the number of employees working for theaffiliate. With regard to affiliate performance, labor productivity was used as sales over the number ofaffiliate employees. Following the past literature, the logarithm of labor productivity was used in theanalyses (e.g., Gong, 2003).
Control Variables
Control variables that might influence the affiliate performance were included in theanalyses. These control variables included industry, nationality (home country) of MNC, amount of
capital invested in the affiliate, ownership ratio, and number of employees working for the MNC in
total. To control for the effect of industries, 10 dummy variables were created representing industries.
To control for the effect of MNC nationality, 17 dummy variables were created representing MNCs’
home countries.
RESULTS
Table 1 presents the descriptive statistics and correlations of key variables used in this study.
A total of 215 out of 643 Japan-based foreign MNC affiliates had non-Japanese expatriate managing
directors. Top management teams of the affiliates had an average of 40.4% expatriate top managers.
The correlation matrix indicates that in general, foreign MNC affiliates with expatriate managing
directors and/or larger investment capital were associated with better performance.

---------------------------------------------Insert Table 1 and Table 2 about here----------------------------------------------

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Hypotheses 1a and 1b predicted that affiliate age would moderate the relationship between
the characteristics of affiliate top management and affiliate performance. To test these hypotheses,
multiple hierarchical regression analyses were conducted. Model 1 and Model 2 as well as Model 0(without interaction terms) in Table 2 present the regression results. In step 1 of the hierarchicalregression, control variables were entered; in step 2, affiliate age, affiliate size, nationality ofmanaging director and proportion of expatriate top managers in TMT were entered (Model 0); in step
3, the two-way interaction between affiliate age and nationality of managing director was entered inModel 1 and the two-way interaction between affiliate age and proportion of expatriate top managers
in TMT was entered in Model 2. A significant interaction indicates a moderating effect (Baron &Kenny, 1986). To reduce multicollinearity when examining interactions, we centered the key
independent variables in the regression (Aiken & West, 1991; Cohen, 1978).
In Model 1, the addition of the two-way interaction term explained an additional 0.6 percentof the variance in affiliate performance, which was statistically significant (F = 4.14, p < .05). In
Model 2, the addition of the two-way interaction did not significantly explain additional variance inaffiliate performance (F = 0.22, n.s.). To examine the nature of the significant two-way interaction, weplotted the interaction using a medium split approach in Figure 1. As Figure 1 suggests, MNC
affiliates with expatriate managing directors performed better than those with Japanese managing
directors when affiliates were younger. This tendency was weaker or nonexistent however whenaffiliates were older. This is consistent with the prediction of Hypothesis 1a. Thus, Hypotheses 1a was
supported and Hypothesis 1b was not supported.
-----------------------------------------------Insert Figure 1 and Table 3 about here-----------------------------------------------Hypotheses 2a and 2b predicted the three-way interaction between affiliate size, affiliate age,and top management characteristics of MNC affiliates. To test these hypotheses, multiple hierarchicalregression analyses were conducted. Model 3 and Model 4 as well as Model 0 in Table 3 present the
regression results. In step 1, control variables were entered; in step 2, affiliate age, affiliate size,
nationality of managing director, and proportion of expatriate top managers in TMT were entered, instep 3, the two-way interaction terms were entered; in step 4, the three-way interaction term including

11

nationality of managing director (Model 3) and that including proportion of expatriate top managers
in TMT (Model 4) was entered. We found a significant three-way interactive effect (Change in R2= .008, F = 5.62, p < .05) in Model 4, but not in Model 3 (Change in R2 = .003, F = 2.40, n.s.). A
graphical illustration of the significant three-way interaction is depicted in Figure 2. As Figure 2
suggests, the interaction between affiliate age and proportion of expatriate top managers in TMT wasstronger when affiliate size was larger. Specifically, affiliates with a larger proportion of expatriate top
managers in TMT performed better than those with a smaller proportion when the affiliate wasyounger and the affiliate size was larger. When the affiliate size was smaller, such a relationship was
weak or nonexistent. This is consistent with the prediction of Hypothesis 2b. Thus, Hypothesis 2a was
not supported and Hypothesis 2b was supported.
-------------------------------Insert Figure 2 about here-------------------------------DISCUSSION
In our study, we theorized and empirically tested the proposition that the relationshipbetween top management characteristics of MNC foreign affiliates and their performance wasmoderated by the length of affiliate operation and affiliate size. Our analyses using a sample of 643
foreign MNC affiliates operating in Japan generally support our major proposition. Specifically, we
found that when the length of an affiliate operation was shorter, the affiliate performed better underthe expatriate managing director, and when the size of an affiliate was larger and the length ofoperation was shorter, the affiliate performed better under the larger rather than smaller proportion of
expatriate top managers in top management teams (TMT). We did not detect the two-way interaction
effect between affiliate age and the proportion of expatriate top managers in TMT, but we did find thethree-way interaction predicted in the second hypothesis, meaning that the two-way interaction would
exist only when the affiliate size is larger.
Implications for MNC Literature
Our results provide evidence and support for the knowledge-based view of MNCs and theupper echelon perspective. That is, our findings indicate that knowledge transfer from the main MNCs
and their foreign affiliates would be especially important when the affiliate age is younger, and thus,

12

expatriate top managers who have MNCs’ firm specific knowledge play a significant role for affiliate
performance. Our findings also indicate the characteristics of top management of MNC foreign
affiliate matter in influencing affiliate performance.
Gong (2003) empirically supported the interaction between the effect of expatriates andaffiliate age using the sample of Japanese MNCs. This research somewhat replicated his findings
using the sample of MNCs from various countries operating in Japan. Therefore, the theory would
apply not only to Japanese MNCs that heavily rely on sending their expatriates for foreign operation(i.e., ethnocentric staffing policy) but also to MNCs in general, from various regions including North
America, Europe, and Asia.
In addition, our result on the three-way interaction between affiliate age, affiliate size andtop management characteristics of MNC affiliate on affiliate performance is a new finding which
deepens the understanding of the effect of executive staffing of MNC foreign affiliates. This finding is
consistent with the theory of executive job demands (Hambrick et al, 2005) such that larger affiliate
sizes are associated with larger executive job demands, and thus, top managers background (e.g.,nationality) will influence their decisions, behaviors and subsequent affiliate performance. Consistent
with our finding for Hypothesis 1, however, the effect will become weaker as affiliate age becomesolder.
Implications for Practice
For MNCs, the decision of whether they should send expatriates or find host country
nationals to fill the top management positions of their foreign affiliates is critical, and such a decision
should be made based on the impact of the nationality of top management on affiliate performance. In
this view, our findings suggest that MNCs should consider sending their expatriate to fill top
management positions especially in the early stage of affiliate operation. This would enable the MNCs
to transfer their internal knowledge to their foreign affiliates as well as to control and coordinate theaffiliate operation more efficiently and effectively. As affiliate age increases, our findings suggest that
MNCs should consider gradually replacing their expatriate top managers with host country nationals
who may be able to manage their local employee better and would be more likely to gain local
legitimacy. Next, our findings suggest that affiliate size may also matter. That is, sending expatriate

13

top managers to fill TMT membership of an MNC foreign affiliate will be the better approach whenaffiliate size is large as well as when affiliates are young.
Limitations and Future Research
Results of our study should be viewed in light of their limitations. First, our findings are
based on the cross-sectional archival data. Therefore, our results provide only limited support forcausal inferences. Also, because we relied on the archival data, the actual process in which top
management characteristics lead to the financial performance within the MNC affiliate is still unclear.
Therefore, future research could further investigate the causal mechanism and the process in which
top management characteristics lead to affiliate performance, mediated or moderated by other factors.
To do so, future research should combine the archival data for multiple period to infer the causality,
and also add other methods of data collection such as mail survey in order to obtain data or
information about the detailed process or mediator variables.
The single country research design using Japanese data also has a potential limitation.
Although there are some advantages of using this design, such as controlling many variables that
otherwise influence the results in multi-country design as well as collecting MNCs from various
countries operating in Japan, the generalizability of findings may be somewhat limited to the Japanesecontext. Our study using the single country research design would work with other studies withmulti-country research design in a complementary way by making up for the limitations of eachmethod. Future research could be conducted either by a single country research design in different
countries or by a multi-country research design to further investigate the topic of our study.

In conclusion, the topic of top management characteristics of MNC affiliates orstaffing practices of MNC affiliates and performance of the affiliates is a promising field to
be investigated further. Future research should continue to pursue this topic by conducting
studies in various countries around the world.

14

REFERENCES
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Cyert, R. M., & March, J. G. 1963. A behavioral theory of the firm. Englewood Cliffs, NJ: PrencticeHall.
Cohen, J. 1978. Partialed products are interactions; partialed vectors are curve components.
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management (2nd ed.). Belmont, Ca.: Wadsworth Publishing.
Downes, M., & Thomas, A.S. 2000. Knowledge transfer through expatriation: The U-curve approachto overseas staffing. Journal of Managerial Issues, 12: 131-149.
Gong, Y. 2002. Staffing subsidiaries of multinational firms: Environmental antecedents and subsidiarylevel outcomes. Unpublished dissertation, The Ohio State University.
Gong, Y. 2003. Subsidiary Staffing in Multinational Enterprises: Agency, Resources, and Performance.
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109–122.

15

Johnston , S., & Menguc, B. 2007. Subsidiary size and the level of subsidiary autonomy inmultinational corporations: a quadratic model investigation of Australian subsidiaries. Journalof International Business Studies, 38: 787-801.
Hambrick, D.C., Finkelstein, S., & Mooney, A.C. 2005. Executive Job Demands: New Insights for
Explaining Strategic Decisions and Leader Behaviors. Academy of Management Review, 30:
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Harzing, A.W. 2001. Who’s in Charge? An Empirical Study of Executive Staffing Practices in Foreign
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Nickerson, J. A., & Zenger, T. R. 2004. A knowledge-based theory of the firm - The problem-solving
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Thompson, K., & Keating, M. 2004. An Empirical Study of Executive Nationality Staffing Practices
in Foreign-Owned MNC Subsidiaries in Ireland. Thunderbird International Business Review,46(6): 771-797.
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Table 1: Descriptive Statistics and Correlations
Variable
1. Affiliate performance
2. Affiliate age
3. Affiliate size
4. Managing director nationality
5. Proportion of expatriate top
managers in TMT
6. Invested capital
7. Ownership ratio

N=643* p < .05; ** p < .01

Mean
4.37
26.92
649.41
0.33

S. D.
1.31
17.39
2184.60
0.47

0.40
0.33
7588.14 33578.35
75.09
27.30

1

2

3

-.04
.02
.13**

.28**
-.03

.00

.09*
-.13**.19** . 20**.05-.15**-.14**.77**-.15**

4

5

6

.64**
.08
.34**

-.07
.46**

-.10**

17

Table 2: Multiple Hierarchical Regression Analyses to Test Hypothesis 1
Variables
1. Control variables
Industry
MNC nationality
Invested capital
Ownership ratio
2. Independent variables
Affiliate age
Affiliate size
Managing director nationality
Proportion of expatriate top managers in TMT
3. Two-way interaction terms
Affiliate age x Managing director nationality
Affiliate age x Proportion of expatriate board managers
R2
Change of R2

Model 0Model 1Model 2

.37**
.05

.38**
.06

.37**
.06

-.02
-.27**
.05
-.06

-.02
-.27**
.06
-.07

-.03
-.27**
.05
-.07

-.08*
.235

.245
.006*

-.02
.236
.000

Note. Standardized regression coefficients are reported. Due to space considerations, coefficients for industry
and MNC nationality (dummy variables) were not reported but are available from the authors.
* p < .05; ** p < .0118

Table 3: Multiple Hierarchical Regression Analyses to Test Hypothesis 2
Variables
1. Control variables
Industry
MNC nationality
Invested capital
Ownership ratio
2. Independent variables
Affiliate age
Affiliate size
Managing director nationality
Proportion of expatriate top managers in TMT
3. Two-way interaction terms
Affiliate age x Managing director nationality
Affiliate size x Managing director nationality
Affiliate age x Proportion of expatriate top managers in TMT
Affiliate size x Proportion of expatriate top managers in TMT
Affiliate age x Affiliate size
4. Three-way interaction terms
Affiliate age x Affiliate size x Managing director nationality
Affiliate age x Affiliate size x Proportion of expatriate top managers
R2
Change of R2 (when three-way interaction was entered)

Model 0Model 3Model 4

.37**
.05

.50**
.05

.49**
.04

-.02
-.27**
.05
-.06

-.03
-.15**
.04
-.07

-.04
-.23*
.06
-.05

-.05
-.24*

-.21*

-.03
.05
-.39**

.12
.235

.267
.003

-.24*
.259
.008*

Note. Standardized regression coefficients are reported. Due to space considerations, coefficients for industry
and MNC nationality (dummy variables) were not reported but are available from the authors.
* p < .05; ** p < .01

19

Figure 1: The Interaction of Affiliate Age and Nationality of the Managing Director for Affiliate
Performance

Affiliate performance

4.9
4.8
4.7
4.6
4.5

Younger affiliate
age
Older affiliate
age

4.4
4.3
4.2
4.1
4
3.9
Expatriate

Local

Managing director nationality

20

Figure 2: The Three-Way Interaction between Affiliate Size, Affiliate Age and Proportion of
Expatriate Board Members for Affiliate Performance

Smaller affiliate size

4.8

4.4
Younger affiliate
age
Older affiliate age

4.2
4
3.8
3.6
3.4
High
Low
Proportion of expatriate top
managers in TMTLarger affiliate size

4.8
4.6
Affiliate performance

Affiliate performance

4.6

4.4
Younger affiliate
age
Older affiliate age

4.2
4
3.8
3.6
3.4
High
Low
Proportion of expatriate top
managers in TMT

21This paper was presented by the first and second author at Academy of International
Business (AIB) Asian Chapter in Hangzhou, China on Dec. 7th 2008. Valuable comments andsuggestions by participants of AIB are appreciated by the authors.
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