Do desperate times call for desperate measures? Strategic responses to regulatory punctuations in the Mexican banking industry, 1991-2004

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2009-06-02

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Drawing insights from liability of foreignness, the punctuated equilibrium model and the resource-based view, this dissertation develops an integrated model to identify the successful strategies and characteristics of both domestic and foreign firms operating in emerging markets, affected by regulatory punctuations. Accordingly, three research questions are addressed: Why are some foreign firms more likely to survive than other foreign firms? Why are some domestic firms more likely to survive than other domestic firms? Are there any similarities between successful foreign firms and successful domestic firms? Using event-history methodologies and the Mexican banking industry as the unit of analysis, this dissertation shows the following results: Foreign firms (banks) from countries with stronger commercial ties to Mexico (the focal emerging market), were less likely to exit the banking industry. Also, the likelihood of exiting the industry, by a foreign firm, was negatively related to domestic firm (bank) acquisitions. For the domestic firms (banks), there was a positive relationship between international diversification and firm survival and a negative relationship between aggressive (loan) growth and firm survival. Also, marginal support was found about the positive relationship between ?grupo? affiliation and firm survival. This research contributes to the extant literature by extending current theories when considering the effect of radical change. For instance, while punctuated equilibrium provides a good ?environmental? explanation about a firm?s need to adapt to radical change, it does not suggest how firms should adapt to this change. However, by providing an explanation on how firms suppose to adapt to this radical change, this dissertation had expanded the theoretical implication of the punctuated equilibrium model. Similarly, the present dissertation provides a theoretical extension to liability of foreignness by finding that not all foreign firms face the same liability of foreignness. Lastly, the resource-based view is also extended by this dissertation research, as it is found to have implications for emerging markets firms that are different from foreign developed market firms.

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