California State University-Long Beach, United States
We examine the impact of state ownership on foreign subsidiary performance. Although state ownership may ensure access to financial resources and home institutional support, we contend that the reliance on government connections to manage environmental uncertainty and complexity in domestic markets may disincentivize SOEs from developing the dynamic capability necessary for managing uncertainty and complexity in foreign markets. Consequently, state ownership may have an inverse U-shaped relationship with foreign subsidiary performance. We further highlight state ownership’s dynamic capability deficiency effect by exploring the moderating effects of pre- vs. post-democratization CEOs and administrative and political distance. Analysis of a unique dataset of Korean commercial banks’ operations in 15 foreign countries supports our contentions. Overall, our study offers a more nuanced understanding of the effect of state ownership on foreign subsidiary performance, contributing to both the international business literature and dynamic capability research.
