The impact of the CEO’s entrepreneurial orientation on internationalization: the moderating role of the CEO’s legal literacy

Abstract

Objectives: This work-in-progress research paper aims to empirically examine the moderating impact of the CEO’s level of international legal literacy on the relationship between the CEO's EO and internationalization.

Prior work: International expansion provides firms with the opportunity for growth and the ability to access knowledge in foreign locations (Chao & Kumar, 2010). An important key firm-level driver of internationalization is the firm’s level of entrepreneurial orientation (EO), reflecting the willingness to innovate, take risks, and be proactive (Liu, Li, & Xue, 2011). However, in addition to firm-level resources, and given the Upper Echelons theory, for small firms, the relevant resources often lie with only one person, the CEO of the small firm (Hambrick & Mason, 1984). Applied to EO, we expect the individual EO of the CEO to influence the willingness to internationalize rather than the firm’s overall EO that previous research focuses on. Therefore, this study aims to address this research gap by focusing on the CEO's individual EO. However, intentions will not always lead to expected action since internationalization requires specialized and higher quality resources, according to The Resource-Based View (RBV) (Casillas & Moreno, 2010). Previous studies state that international market knowledge benefits internationalization (Zhou, 2007). However, we believe the internationalization research field is missing the importance of the CEO’s (international) legal knowledge. Previous studies argue that a lack of (international) legal knowledge could complicate the process of strategic business decisions (like the internationalization of a firm), as it may cause stress and anxiety when making decisions (Freudenberg, 2017). Therefore, we expect that the CEO’s lack of international legal literacy (being aware of foreign laws and regulations) will negatively influence the relationship between the CEO’s EO and internationalization in such a way that it can be a barrier in the process of the willingness to internationalize and effectively conducting (more) international activities. In addition, we also examine the role of an external (legal) advisor in this context, as we expect that hiring an external (legal) advisor may compensate for the CEO’s lack of international legal knowledge and, therefore, will also weaken the moderating effect of the CEO’s international legal literacy.

Approach: Data collection will be conducted via a quantitative survey that will be sent out to the respondents via email. The target sample will consist of the CEOs of Belgian private SMEs that are willing to internationalize or are already internationally active. We focus on the CEOs of SMEs since we know from the upper echelons theory that organizations (and especially small firms) are a reflection of their leaders, their CEO.

Results: This is a work-in-progress paper, which is currently in a data-gathering phase. Results, therefore, cannot be provided at this point in time. Implications and value: Since no scale exists yet to measure the CEO's international legal knowledge, we develop our own scale to capture the CEO's international legal knowledge, making it one of the main contributions of this study. Next, this study makes significant contributions to the theory of SME internationalization by evaluating the impact of the CEO's EO on the internationalization process. Traditionally, studies have looked at the overall EO of the firm, but for small firms, the CEO's individual EO is more likely to determine their willingness to go international. Additionally, this study contributes to the RBV by investigating whether the CEO's international legal knowledge can facilitate successful internationalization or act as a barrier if such knowledge is lacking. While previous research on legal literacy has been theoretical, this study offers empirical evidence on the impact of the CEO's international legal literacy on the relationship between EO and internationalization. Lastly, the practical implications of this study will inform SME CEOs and policymakers about the importance of international legal literacy, encouraging them to take measures to increase such knowledge in the entrepreneurial community.