State ownership and international expansion: The S‐curve relationship

Research Summary We study how state ownership affects the international expansion of emerging‐market firms. Building on agency theory and the resource‐based view, we propose an S‐curve relationship: Firms with a low level of state ownership have a limited level of international expansion, those with a medium level of state ownership have an increasing level, and those with a high level of state ownership have a decreasing level. This S‐curve is the outcome of the interaction between the “hindering hand” of state ownership, arising from multilevel agency problems, and the “helping hand,” arising from state‐ownership advantages. Analyses of 674 publicly traded firms from 16 emerging markets support these ideas and reveal that the inflection points in the S‐curve appear at state‐ownership levels of 19 and 43%. Managerial Summary State ownership of emerging‐market firms results in their international expansion following an S‐curve pattern because state ownership has hindering and helping influences. Firms with low state ownership have a limited level of international expansion because they are subject to government interference but receive limited support. Firms with a medium level of state ownership have an increasing level of international expansion because they have greater access to resources while the negative effects of state control are restrained by the dominance of private owners. Finally, firms with a high level of state ownership have a decreasing level of international expansion because the advantage of resource provision is offset by tight state controls. We illustrate these ideas through the analyses of 674 firms from 16 emerging markets.