Nation‐dyadic history and cross‐border corporate deals: Role of conflict, trade, generational distance, and professional education

• Date: 01 March 2020
• Published date: 01 March 2020
• Author: Oded Shenkar,Asli M. Arikan,Ilgaz Arikan
• DOI: http://doi.org/10.1002/smj.3046

SPECIAL ISSUE ARTICLE

Nation-dyadic history and cross-border corporate

deals: Role of conflict, trade, generational distance,

and professional education

Ilgaz Arikan

1

| Asli M. Arikan

1

| Oded Shenkar

2

1

Department of Management and

Information Systems, College of Business

Administration, Kent State University,

Kent, Ohio

2

Ford Motor Company Chair in Global

Business Management, Department of

Management and Human Resources, Fisher

College of Business, The Ohio State

University, Columbus, Ohio

Correspondence

Ilgaz Arikan, Department of Management

and Information Systems, College of

Business Administration, Kent State

University, A413 Terrace Drive, Kent, OH

44242.

Email: iarikan@kent.edu

Funding information

Mershon Center for International Security

Studies, Grant/Award Number: 04142017

Abstract

Research Summary:This paper explores why and how

nation-dyadic history impacts aggregated firm decisions

involving cross-border activities (acquisitions, joint

ventures, and alliances). We contextualize history and

illustrate the negative effect of historical conflict on cross-

border deals. Nation-dyads with historical conflict incor-

porate negative sentiments into their social and collective

memories and national identities. Members of society

assume the socially constructed national identity via pri-

mary and secondary socialization. National identities

incorporate sentiments towards other nations and condi-

tion individuals' preferences, culminating in a preference-

biased search for or preference-supporting evaluation of

information concerning cross-border deals. An increased

generational distance from prior conflict and a higher per-

centage of graduates with common professional identities

constructed by higher education in the social sciences,

law, and business dampen the negative influence of histor-

ical conflict.

Managerial Summary:There is a reciprocal relationship

between international trade and conflict across two

nations: as the potential for conflict increases, trade levels

fall, and as trade levels increase, the potential for conflict

rises. We disentangle this relationship and determine the

implications of historical conflict between two nations for

cross-border corporate deals (i.e., acquisitions/joint

ventures/alliances). We show that, controlling for other

Received: 29 September 2017 Revised: 15 May 2019 Accepted: 16 May 2019 Published on: 21 June 2019

DOI: 10.1002/smj.3046

422 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2020;41:422–466.wileyonlinelibrary.com/journal/smj

factors, more frequent historical conflict discourages

cross-border corporate deals. We see this finding as a

result of biased decision making based on preferences

which reflect sentiments formed by national identities.

Two mechanisms dampen the negative relationship

between binational conflict and cross-border deals: a

higher percentage of business/law/social sciences gradu-

ates and a higher number of generations passed since the

last conflict.

KEYWORDS

conflict, cross-border deals, decision making, history, identities,

international relations and trade, sentiments, socialization

1|INTRODUCTION

On August 6, 1945, a U.S. bomber dropped an atomic bomb on Hiroshima, followed by a bomb

on Nagasaki days later. The initial death count surpassed 150,000, and over 400,000 lives were

lost due to the after effects. On August 14, Japan surrendered. From 1945 to 1952, Allied Forces

enacted sweeping reforms, sustaining the recovery of trade and commerce with the United

States (U.S. Department of State, Office of the Historian). A survey of Japanese citizens showed

that “the bombs started a warm relationship and turned mortal enemies into friends”even

though the expectation was “heightened antagonism and anger across generations”(Ambrose &

Brinkley, 2010, p. 161). The generation that experienced the destruction admired the “magna-

nimity of the victorious Americans”and was thankful for their “noble generosity”(Kennedy,

1999, p. 428).

In sharp contrast, the relationship between China and Japan continued to deteriorate follow-

ing the occupation of Chinese territory in 1931–1945 despite Japanese financial support and

cultural exchanges (Inoguchi & Ikenberry, 2013). A recent survey of 1,296 Chinese individuals

(80% of which were students) aged 15–35 years showed that 67.8% of the participants consid-

ered historical issues when asked about Japan, and 50.2% (35.3%) believed that the relationship

between China and Japan would remain the same or deteriorate (improve) in the future

(Walczak, 2010).

1

These two examples highlight that the impact of nation-dyadic historical contexts on long-

lasting attitudes that are influential in international relations and bilateral trade varies. The

annual foreign direct investment (FDI) by U.S. (Japan) firms in Japan (the United States)

accounted for at least 31% (20%) of the total annual inward FDI between 1996 and 2013.

2

During

the same period, the annual percentage of inward and outward FDI between China and Japan

remained less than 6% of each country's total FDI. The contrast echoes the central question in

1

In 2014, an opinion survey was concurrently conducted in China and Japan for the 10th time by the Genron NPO and China

Daily. Results show that 2.6% (11.7%) of the Japanese (Chinese) respondents perceived the Chinese (Japanese) national

character to be “trustworthy.”The detailed report is available at http://www.genron-npo.net/en/pp/docs/10th_Japan-China_

poll.pdf (accessed December 15, 2018).

ARIKAN ET AL.423

this paper: how does history, specifically antagonistic national sentiments, impact firms' inclina-

tion to engage in cross-border deals?

Trade and conflict between pairs of nation-states (nation-dyads) have been extensively studied as

mutual causes and deterrents. On the one hand, by creating mutual dependence, international trade

deters conflict (Polachek, 1980); on the other hand, economic interdependencies can cause conflict

(Barbieri, 2002). Conflict can facilitate trade, as in the case of Japan and the United States, and trade

relations might not alleviate the animosity stemming from historical conflicts, as in the case of Japan

and China. Similarly, predictions of corporate activities, such as mergers and acquisitions (M&A),

are less clear when shifting from the national to the firm level. While trade relations may encourage

corporate activity in a nation-dyad, historical conflict with lingering negative sentiments may dimin-

ish such activity. This paper explores theoretically and empirically why and how nation-dyadic his-

tory impacts aggregated firm decisions concerning cross-border activity. This exploration is

performed by contextualizing the history between nation-dyads and illustrating how the incidence of

such activity is negatively impacted by historical conflict.

In this paper, we contend that the omission of historical context or its implicit aggregation

within national culture or “environment”results in imprecise measures, vague constructs, and

more broadly, a superficial view of contextual impact. Dimming the historical lens deprives us

of recognizing long-lasting and deeply rooted historical and temporal social effects, resulting in

premature assumptions about why and how firms make strategic decisions. Omitting the histori-

cal context obscures the interface across national institutional systems and conceals how animos-

ity among nations, societies or people preconditions or biases firms' decisions concerning a

country, a regime, or a political system. Theoretically, the lack of historical contextualization

can lead to misrepresentations of causal relationships; empirically, it can lead to sample selection

and endogeneity issues.

We propose an integrative framework in which history between nations and their societies

impacts the context in which firms operate and influences aggregated cross-border corporate

activity. The results illustrate the benefits of historical contextualization and the salience of cau-

sality at the aggregated level of cross-border activities.

3

Our approach integrates research streams

in international economics, international relations, and strategic management, including research

documenting the role of nation-dyadic history under animosity to determine the prevalence and

mode of firm cross-border alliances (Arikan & Shenkar, 2013). We extend this newly emerging

line of inquiry by incorporating nation-dyadic history as a key determinant of aggregated cross-

border corporate activities. We draw on the general assumptions of decision making framing and

the social constructionist views of national and professional identities to theoretically and empir-

ically test the boundary conditions of the relationship between nation-dyadic historical conflict

and aggregated cross-border deals. National identities reflect collective memories of dyadic con-

flicts and trigger stronger sentiments among the generation with first-hand experience with such

conflicts. Generational distance from historical conflicts dampens the salience and impact of

such sentiments on cross-border business decisions. Similarly, professional identities shaped by

higher education in law, business, and social sciences reflect common paradigms that cut across

borders related to business decisions.

2

We calculated the percentages of inward and outward FDI between Japan and the United States. and between Japan and

China using Regional Direct Investment Position (Assets) data provided by the Bank of Japan (available at https://www.boj.or.

jp/en/statistics/br/bop/index.htm/).

3

The word “aggregated”may be omitted at times to reduce repetition. We use “corporate deals”and “corporate activities”

interchangeably to label cross-border acquisitions, joint ventures, and strategic alliances.

424 ARIKAN ET AL.