Modeling the „Visitors to Rome“ effect: Reputation Building in Anglo-Saxon Buyout Funds in Japan

Blind, Georg and Stefania, Lottanti von Mandach (2017): Modeling the „Visitors to Rome“ effect: Reputation Building in Anglo-Saxon Buyout Funds in Japan.

Abstract

Stereotypes pose a major challenge to agents entering a foreign market. In order to overcome these stereotypes, visitor agents may decide to emulate domestic behavior. We develop a simple model of reputation building in transactions where identities are revealed and show that this tendency may even imply over-assimilation if stereotypes are sticky and assimilation efforts are not overly costly. The model predictions are tested using data on private equity-led buyout transactions in Japan from 1998 to 2015. While early transactions by Anglo-Saxon investors display marked differences, there is a strong tendency toward approximation of domestic standards, which eventually leads to over-compensation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Reputation building; stereotypes; strategically revealed preferences; buyout investments; heterogeneous preferences
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; F - International Economics > F6 - Economic Impacts of Globalization > F65 - Finance; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification

References

Ailon, Galit (2008), “Mirror, mirror on the wall: Culture's Consequences in a Value Test of its Own Design,” Academy of Management Review, 33(4): 885–904.

Ailon, Galit (2009). “A Reply to Geert Hofstede,” Academy of Management Review, 34(3): 571–573.

Akerlof, George A., and Rahel E. Kranton (2000). “Economics and Identity,” The Quarterly Journal of Economics, 115(3): 715–753.

Andreoni, James, and Ragan Petrie (2008). “Beauty, Gender and Stereotypes: Evidence from Laboratory Experiments,” Journal of Economic Psychology, 29(1): 73–93.

Arrow, Kenneth J. (1998). “What has Economics to Say about Racial Discrimination?” The Journal of Economic Perspectives, 12(2): 91–100.

Becker, Gary S. (1957). The Economics of Discrimination: an Economic View of Racial Discrimination, Chicago, IL: University of Chicago Press.

Bertrand, Marianne, and Sendhil Mullainathan (2004). “Are Emily and Greg more Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination,” The American Economic Review, 94(4): 991-1013.

Blind, Georg and Stefania Lottanti von Mandach (2015). “Not a Coincidence: Sons-in-Law as Successors in Successful Japanese Family Firms,” MPRA Working Paper, available at: https://ideas.repec.org/p/pra/mprapa/66695.html.

Carlson, John G., and Alain J. Rowe (1976). “How Much Does Forgetting Cost?” Industrial Engineering, 8(9): 40–47.

Castro, Massimo Finocchiaro (2008). "Where are you from? Cultural Differences in Public Good Experiments," The Journal of Socio-Economics, 37(6): 2319–2329.

Chen, Yan, and Sherry Xin Li (2009). "Group Identity and Social Preferences," The American Economic Review 99(1): 431-457.

Coate, Stephen, and Glenn C. Loury (1993). “Will Affirmative-Action Policies Eliminate Negative Stereotypes?” The American Economic Review 83(5): 1220–1240.

Collier, Irwin L., and Horst Siebert (1991). "The Economic Integration of Post-Wall Germany," American Economic Review, 81(2): 196–201.

England, George W. (1967). “Personal Value System of American Managers,” Academy of Management Journal 10: 53-68.

Fayol-Song, Lingfang (2011). "Reasons behind Management Localization in MNCs in China," Asia Pacific Business Review 17(4): 455–471.

Ghemawat, Pankaj, and Michael A. Spence (1985). “Learning Curve Spillovers and Market Performance,” The Quarterly Journal of Economics 100(supplement): 839–852.

Gibson, Rajna, Carmen Tanner, and Alexander F. Wagner (2013). “Preferences for Truthfulness: Heterogeneity among and within Individuals,” American Economic Review, 103(1): 532–548.

Guiso, Luigi, Paola Sapienza, and Luigi Zingales (2006). “Does Culture Affect Economic Outcomes?” The Journal of Economic Perspectives 20(2): 23–48.

Haire, Mason, Edwin E. Ghiselli, and Lyamn W. Porter (1966). Managerial Thinking: an International Study, New York, NY: Wiley.

Harrison, Glenn W., John A. List, and Charles Towe (2007). “Naturally Occurring Preferences and Exo¬genous Laboratory Experiments: A Case Study of Risk Aversion,” Econometrica 75(2): 433–58.

Hayek, Friedrich A. (1948). Individualism and Economic Order, London: Routledge.

Haynes, Bill (2009). Private Equity Brand Equity: A Study of the Relevance of Brand in the Private Equity Industry, BackBay Communications.

Hayton, James C., Gerard George, and Shaker A. Zahra (2002). "National Culture and Entrepre¬neur¬ship: A Review of Behavioral Research," Entrepreneurship: Theory and Practice 26(4): 33–53.

Healy, Paul J. (2007). “Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market,” The American Economic Review 97(5): 1751-1773.

Hofstede, Geert (1980). “Culture’s Consequences – International Differences in Work-Related Values”, Beverly Hills, CA: Sage.

Hofstede, Geert (2001). “Culture’s Consequences – Comparing Values, Behaviors, Institutions and Organizations Across Nations”, Thousand Oaks: Sage.

Jaber, Mohamad Y., and Maurice Bonney (1997). “A Comparative Study of Learning Curves with Forgetting,” Applied Mathematical Modelling 21(8): 523–531.

Kandel, Denise B. (1978). “Homophily, Selection, and Socialization in Adolescent Friendships.” American Journal of Sociology 84(2): 427–436.

Katzner, Donald W. (2008). Culture and Economic Explanation: Economics in the US and Japan, Milton Park: Routledge.

Kluchhohn, Florence R., and Fred L. Strodtbeck (1961). Variations in Value Orientations. Row, Evanston, IL: Peterson.

Kuhn, Manford. H., and Thomas S. McPartland (1954). “An Empirical Investigation of Self Attitudes,” American Sociological Review 19: 68-76.

Kumar, Alok, Alexandra Niessen-Ruenzi, and Oliver G. Spalt (2015). “What's in a Name? Mutual Fund Flows When Managers Have Foreign-Sounding Names” Review of Financial Studies: hhv017.

Ljungqvist, Alexander, Matthew Richardson, and Daniel Wolfenzon (2008). The Investment Behavior of Buyout Funds: Theory and Evidence. NBER Working Paper No. 14180.

Manski, Charles F. (1993). “Identification of Endogenous Social Effects: The Reflection Problem,” The Review of Economic Studies 60(3): 531-542.

Manski, Charles F. (2000). “Economic Analysis of Social Interactions,” The Journal of Economic Perspectives 14(3): 115-136.

McPherson, Miller, Lynn Smith-Lovin, and James M. Cook (2001). “Birds of a Feather: Homophily in Social Networks,” Annual Review of Sociology 27(1): 415–444.

McSweeney, Brendan (2002). “Hofstede’s Model of National Cultural Differences and their Consequences: A Triumph of Faith-a Failure of Analysis,” Human Relations 55(1): 89–118.

Ockenfels, Axel, and Joachim Weimann (1999). "Types and Patterns: an Experimental East-West-German Comparison of Cooperation and Solidarity," Journal of Public Economics 71(2): 275–287.

Park, Seung Ho, and Gerardo R. Ungson (1997). "The Effect of National Culture, Organizational Complementarity, and Economic Motivation on Joint Venture Dissolution," Academy of Management Journal 40(2): 279–307.

Rokeach, Milton (1937). The Nature of Human Values, New York: Free Press.

Rothaermel, Frank T., Suresh Kotha, and H. Kevin Steensma (2006). "International Market Entry by US Internet Firms: an Empirical Analysis of Country Risk, National Culture, and Market Size," Journal of Management 32(1): 56–82.

Ruffle, Bradley J., and Richard Sosis (2006). “Cooperation and the In-Group-Out-Group Bias: A Field Test on Israeli Kibbutz Members and City Residents”, Journal of Economic Behavior & Organization 60(2): 147–163.

Sarala, Riikka M., and Eero Vaara (2010). "Cultural Differences, Convergence, and Crossvergence as Explanations of Knowledge Transfer in International Acquisitions," Journal of International Business Studies 41(8): 1365–1390.

Saviotti, Paolo P., and J. Stanley Metcalfe (1984): "A Theoretical Approach to the Construction of Technological output Indicators," Research Policy 13(3): 141–151.

Schwab, Stewart (1986). “Is Statistical Discrimination Efficient?” The American Economic Review 76(1): 228–234.

Solow, John L., and Nicole Kirkwood (2002). "Group Identity and Gender in Public Goods Experiments," Journal of Economic Behavior & Organization 48(4): 403–412.

Spence, Michael A. (1981). “The Learning Curve and Competition,” The Bell Journal of Economics 12(1): 49–70.

Taras, Vas, Julie Rowney, and Pier Steel (2009). “Half a Century of Measuring Culture: Review of Approaches, Challenges, and Limitations Based on the Analysis of 121 Instruments for Quantifying Culture,” Journal of International Management 15(4): 357-373.

The Economist (2010). Private Equity in Japan – The Waiting Game, available at http://www.economist.com/node/15721549

Willinger, Marc, Claudia Keser, Christopher Lohmann, and Jean-Claude Usunier (2003). “A Comparison of Trust and Reciprocity between France and Germany: Experimental Investigation based on the Investment Game,” Journal of Economic Psychology 24(4): 447–466.

Vaara, Eero, Riika Sarala, Günter K. Stahl, and Ingmar Björkman (2012). "The Impact of Organizational and National Cultural Differences on Social Conflict and Knowledge Transfer in International Acquisitions," Journal of Management Studies 49(1): 1–27.

Wright, Mike, Motoya Kitamura, and Robert E. Hoskisson (2003). “Management Buyouts and Restructuring Japanese Corporations,” Long Range Planning 36(4): 355–373.