Surviving the Time: CEO Tenure and Its Impact on Risky Foreign Direct Investment in Conflict-Prone Belt and Road Initiative Participant Countries

Abstract

Introduced in 2013, the Belt and Road Initiative (BRI) emerged as a crucial catalyst in facilitating outward foreign direct investment (OFDI) of Chinese private enterprises. While the majority of BRI participant countries are characterized by high risk of violent conflicts, we have limited understanding of why firms invest in such regions despite such inherent risks. Thus, the aim of this study is to unveil the determinants of engagement in risky investment projects. Drawing on the literature of international business and strategic management, this study seeks to examine the relationship between CEO tenure and its impact on the likelihood of undertaking risky investments in the context of Chinese private firms in BRI participant countries. Using the sample of 1140 listed privately owned Chinese multinational enterprises (MNEs) that invested in at least one foreign country between 2013 and 2019, panel logistic regression was conducted to test the hypothesized relationships. The findings of this study indicate that the longer the CEO holds their position, the less likely the firm is to undertake risky investments. Moreover, when the longevity of CEO tenure is coupled with the presence of a dominant shareholder, this effect is further exacerbated. Furthermore, when a long-tenured CEO serves as the chairman of the board, the resistance to undertaking risky investment becomes stronger. By highlighting the effects of CEO tenure, as well as the relationship between governance characteristics and engagement in risky investment projects, this study suggests a sustainable corporate governance structure to build a transparent decision-making process for both investing firms and the host countries.

1. Introduction

Introduced in 2013, the Belt and Road Initiative (BRI) has emerged as the foundation of the foreign policy of China. In addition to its goal to resolve the industrial overcapacity dilemma, the BRI was expected to provide a platform for Chinese firms to explore and access new markets, establish strategic partnerships, and develop business opportunities in participating countries [1]. Accordingly, the BRI encouraged Chinese companies to undertake OFDI in BRI participant countries. However, risks inherent in many of the BRI participant countries pose significant challenges for Chinese private firms to invest in the regions [2,3]. Contrary to the conventional wisdom that such inherent risks posed by violent conflicts in a host country deter foreign direct investment [4,5], Chinese private firms have been increasingly investing in the Belt and Road Initiative (BRI) participant countries that are characterized by violent conflicts [6].

Despite the efforts put in by previous studies to understand why certain firms insist to undertake risky investments in conflict-prone countries [5,7], our understanding remains confined to firm-level resources that can be harnessed to navigate the challenges emanating from such adversarial environments [8]. This is problematic given that the likelihood of a firm pursuing a risky investment project may be intricately tied to the CEO’s individual inclinations, often spurred by the prevailing circumstances they are situated in, rather than solely factoring in the firm’s resources or its evaluation of the project’s potential outcomes [9,10,11]. However, scant emphasis has been placed on the attributes of these pivotal decision-makers within firms as influential determinants of investment choices within conflict-prone settings [12].

Although the significance of CEO tenure in shaping a firm’s risk-taking orientation has been substantiated in various contexts [13,14,15], our comprehension of whether this effect extends to OFDI in conflict-prone contexts remains restricted. Furthermore, despite the mounting volume of OFDI pursuits by Chinese MNEs in conflict-prone countries associated with the BRI [16,17], scant attention has been directed toward comprehending the mechanisms that underpin these investment decisions within the framework of BRI participant countries. Thus, this study seeks to provide an answer to the following question: how does CEO tenure affect OFDI likelihood in conflict-prone BRI participant countries? Utilizing the context of BRI investment of Chinese private firms, this study seeks to address the gap by shedding light on the characteristics of the actors involved in the decision-making process and investigate how they jointly affect the investment decision in such hostile environments.

Chinese MNEs provide an appropriate context to study the phenomenon of risky investments in conflict-prone countries. China, not only as the foremost beneficiary of foreign direct investment (FDI) worldwide, but also as a nation witnessing the steady growth of its domestic companies’ global reach, holds a significant position in the international arena [4,18,19,20,21,22]. Simultaneously, the Chinese government’s ambitious initiative, the BRI, introduced in 2013, has emerged as a crucial catalyst in facilitating outward foreign direct investment (OFDI) of private enterprises in countries participating in the BRI project [1,23]. This massive undertaking entails extensive infrastructure and development projects, further enhancing the role of Chinese firms in expanding their presence abroad. Given that one of the main objectives of the BRI is to enhance economic cooperation and promote trade and investment between China and participating countries, the project has been providing a framework that paves the way for Chinese firms to invest in foreign countries [24]. While investing in BRI participant countries offers numerous advantages, it also presents significant challenges and risks for Chinese multinational enterprises. For example, according to the 2020 Country Risk of Overseas Investment from China, 84 percent of 117 BRI countries are classified as medium–high-risk countries. Specifically, the vast majority of these countries are characterized by high risk of violent conflicts [2]. Furthermore, Chinese multinationals and their expatriates are becoming targets of terrorist groups in those countries. For example, a number of Chinese expatriates in Pakistan, one of the first and most heavily invested BRI participant countries, were killed by the terrorist attack [3].

Using the sample of Chinese private firms, this study focuses on CEO tenure, dominant shareholder phenomena, and CEO duality and investigate how they affect the CEO’s likelihood of undertaking such a project. Specifically, drawing on the literature of international business and strategic management, this research contends that the longer the CEO serves the firm, the more reluctant the CEO becomes to invest in such regions. While newly appointed CEOs have a great incentive to prove their capability in the organization [15], those that have stood the test of time become more focused on preserving their legacy [14].

However, the effect will depend on the governance framework within which the CEOs operate. First, by focusing on the power of dominant shareholder, this study contends that as dominant shareholders exhibit tendency to avoid risky investment opportunities [25], the presence and the greater power of dominant shareholder will further reinforce the resistance to engage in investment in BRI participant countries of a firm that is served by a long-tenured CEO. Second, this study focuses on CEO duality and argues that when CEO is also in a position of a chairman in the board of directors, the CEO may further exert their power over other directors and influence the strategic decisions of the firm [26,27]. Thus, firms with long-tenured CEOs are even less likely to invest in conflict-prone BRI participant countries when the CEO also serves as the chairman of the firm.

This study makes three significant contributions to existing research. Firstly, it provides a deeper understanding of the motivations and decision-making processes of CEOs in private firms that choose to invest in conflict-prone countries participating in the BRI. While the BRI was initially driven by state-owned enterprises (SOEs), it has now become an attractive platform for private firms seeking international expansion [6,23]. However, little is known about why some firms are willing to bear the associated risks. This study uncovers the determinants of risky investments in conflict-prone BRI participant countries, shedding light on the decision-making factors for private firms.

Secondly, the study highlights the importance of governance structures in addressing agency issues, particularly regarding CEO tenure in Chinese private firms. It reveals that the presence of risk-averse dominant shareholders further hinders investments in conflict-prone BRI participant countries [25]. This emphasizes the need to consider the broader organizational context and governance arrangements when examining the impact of CEO tenure on investment likelihood. To effectively address agency issues arising from CEO tenure, firms should carefully consider the composition of their board of directors. By strategically structuring the board, firms can establish a governance framework that promotes balanced decision making and reduces the risk of agency problems.

Lastly, the findings of this study offer valuable guidance for formulating economic policies related to the sustainable development through the Belt and Road Initiative (BRI). Despite the initial goal of the BRI to promote economic cooperation between China and the participant countries, there has been increasing criticism regarding its adverse effects on the environmental and economic conditions of these countries [28,29]. This study suggests that improving the governance structure of Chinese private firms may not only contribute to the economic conditions but also the environmental well-being of the participant countries. Restructuring the corporate governance system to promote entrepreneurial risk-taking behavior of firms could positively impact the sustainable economic development of both investing firms and the economies of conflict-affected countries. Moreover, governance reforms that ensure better representation of the voices of minority shareholders may lead investing firms to become more transparent regarding their impact on the environment in the participant countries [30]. By addressing these aspects, the BRI can move towards a more sustainable and mutually beneficial economic collaboration.

This paper is structured as follows. The next section provides conceptual background and hypotheses. Data and methodology are explained in Section 3. Empirical results are delineated in Section 4. Lastly, Section 5 discusses the conclusion and implications of this study. In doing so, limitations of this study along with future research avenue are specified in the last section.

2. Conceptual Background and Hypothesis Development

2.1. The Effects of CEO Characteristics on FDI Strategies

Foreign direct investment (FDI) plays a pivotal role in the globalization of business operations, and CEOs, as key decision-makers, can significantly influence FDI strategies. The relationship between CEO characteristics and FDI decisions has garnered substantial attention from researchers and practitioners. This systematic literature review aims to consolidate existing knowledge on the impact of CEO characteristics on FDI decisions, shedding light on the nuanced interplay between executive attributes and international investment choices. A systematic search was conducted across academic databases using keywords such as “CEO characteristics”, “foreign direct investment”, “internationalization”, and “investment decisions”. The inclusion criteria encompassed peer-reviewed articles published between 1991 and 2023 that explored the relationship between CEO characteristics and FDI. After a comprehensive search, a total of 37 relevant articles were identified for the review.

Numerous studies have delved into the effects of CEO demographics, such as age, gender, and education, on FDI decisions. Research suggests that CEO age is positively associated with FDI through joint venture over greenfield investments, potentially due to reduced capacity for information processing and analysis [31]. Gender-diverse boards, driven by female CEOs, may exhibit more cautious internationalization strategies [12,32,33]. Education, particularly international exposure, has been linked to FDI propensity, as CEOs with broader knowledge of international markets tend to pursue FDI opportunities [31]. Personality of CEOs, such as narcissism, is found to be closely related to strategic decisions such as FDI as well [34,35,36]. CEO experience has emerged as a critical factor influencing FDI decisions. Executives with extensive international exposure tend to adopt more aggressive internationalization strategies, leveraging their familiarity with foreign markets [31,33]. Prior FDI experience also facilitates the navigation of regulatory complexities and cultural nuances, influencing firms’ FDI choices [31].

CEO risk aversion has emerged as a compelling factor shaping FDI decisions. Risk-averse CEOs tend to adopt conservative internationalization strategies, preferring low-risk FDI modes, such as joint ventures or acquisitions [12,27]. This linkage reflects CEOs’ risk preferences, which are informed by their individual characteristics and managerial orientation. Leadership styles, such as transformational and charismatic leadership, can impact FDI decisions. Transformational CEOs, known for their visionary and innovative approach, might be more inclined toward aggressive FDI strategies. Charismatic leaders, on the other hand, could influence FDI choices through their persuasive abilities and visionary outlook [37].

CEO tenure plays a pivotal role in FDI decisions. Longer-tenured CEOs may exhibit greater organizational experiences that can be utilized to undertake FDI ventures [31]. However, they could also be more averse to risky FDI, aiming to protect their established legacies [14,17,38]. Such mixed findings regarding the effect of CEO tenure call for further investigation of the effect of CEO tenure on FDI decisions. Furthermore, despite substantial efforts to illuminate the impact of CEO characteristics on FDI, the existing body of literature in the stream lacks comprehensive insights into why firms embark on FDIs in high-risk regions. While recent studies have endeavored to uncover the determinants of these daring investment decisions, a predominant focus persists on the firm-level resources available to mitigate the challenges posed by hostile environments [8]. However, this approach presents a concern as it overlooks the intricate connection between the likelihood of a firm pursuing a risky investment and the CEO’s personal proclivities, often influenced by the prevailing circumstances, which may transcend mere resource evaluations or anticipated project outcomes [9,10,11]. Remarkably, limited attention has been directed towards the characteristics of these pivotal decision-makers within firms as potent influencers of investment choices within conflict-prone contexts [12].

2.2. Research Context—Chinese MNEs and Risky FDI

Although Chinese OFDI has shown a significant increase since the country commenced its open-door policy in 1978, the volume of Chinese outward foreign direct investment (OFDI) is still relatively marginal compared to the gross domestic product (GDP) of China [19,39]. Introduced in 2013, the Belt and Road Initiative (BRI) has emerged as the foundation of the foreign policy of China. In addition to its goal to resolve the industrial overcapacity dilemma, the Chinese government expected that the BRI will enhance economic cooperation and promote trade and investment between China and participating countries. Specifically, the BRI was expected to provide a platform for Chinese firms to explore and access new markets, establish strategic partnerships, and develop business opportunities in participating countries [1]. It seeks to create an environment conducive to foreign direct investment by promoting trade facilitation, reducing barriers, and enhancing economic cooperation.

Accordingly, the BRI encouraged Chinese companies to undertake OFDI in BRI participant countries. By providing financial assistance, promoting policy coordination, and improving infrastructure connectivity, the Chinese government aimed to facilitate and support Chinese firms in expanding their operations overseas. The BRI was mainly led by state-owned enterprises (SOEs) in the initial phase [1,24]. With the significant amount of investment undertaken by the Chinese SOEs, the Chinese government expected that the BRI will not only provide a platform to promote trade with the participant countries, but also pave the way for private firms to directly invest in the BRI participant countries and benefit from the improvement in infrastructure across the regions. In fact, contrary to the early phase of the project, most of the major players in the project were found to be private firms, except for the construction sector [6].

However, it is worth noting that investing in foreign countries still poses risks and challenges, including political, security, legal, and regulatory uncertainties. While substantial efforts have been made by the state and the SOEs, risks inherent in many of the BRI participant countries pose significant challenges for Chinese private firms to invest in the regions. According to the 2020 Country Risk of Overseas Investment from China, 84 percent of 117 BRI countries are classified as medium–high-risk countries. Specifically, the vast majority of these countries are characterized by high risk of violent conflicts [2]. In addition, the pressure to secure investment from such risks has been indicated as the largest challenge that discourages both SOEs and private firms from investing in those conflict-prone BRI participant countries [40]. Moreover, such exogenous shocks may lead to disruption in the global supply chain network of MNEs [7,8,41].

Despite the challenges posed by the inadequate infrastructure and risks associated with operating in conflict-prone countries, it is important to acknowledge that investment in these BRI participant countries can also present significant opportunities and potential benefits. One notable advantage is the access to valuable natural resources that the governments of such countries often grant to multinational enterprises (MNEs) [8,42]. The availability of these natural resources can be a compelling incentive for firms, as it allows them to secure essential inputs for their production processes or gain a competitive edge in resource-intensive industries [43]. Furthermore, investment in conflict-prone regions may provide MNEs with unique market access or preferential treatment, enabling them to establish strong market positions and capture untapped consumer segments [12,42].

As a result, an increasing number of private firms in China are recognizing the potential benefits and strategic opportunities associated with investing in conflict-prone regions [6]. In other words, private firms in China view these regions not solely as challenges but also as platforms for growth and to gain competitive advantage. By carefully assessing the risks and developing effective risk management strategies, firms are positioning themselves to capitalize on the available opportunities and gaining a foothold in these emerging markets.

2.3. CEO Tenure and Risky FDI

While the CEO role carries substantial influence within today’s corporate landscape, CEOs confront various challenges that pose threats to their positions. In addition to contending with various crises, CEOs have witnessed a significant rise in the sheer abundance of factors capable of derailing them [44]. Consequently, CEO turnover has reached a five-year high, becoming more prevalent than ever before [45]. Furthermore, the appointment of younger CEOs and the mounting pressure on firms to enhance gender diversity have become increasingly commonplace [46]. Consequently, the task of safeguarding the CEO position has become more formidable than at any point in history.

In this regard, CEO tenure has significant implications for firms’ decisions regarding investment decisions [13,37,47]. In their early tenure, CEOs often face the constant pressure to prove their capabilities given the uncertainty surrounding the ability of the newly appointed CEO [15]. The strategic decisions made by the CEOs as well as the performance implications of the decisions will not only determine their future compensation but also dismissal/retainment of the CEO [13,48]. Furthermore, especially when the CEO was appointed through the process of the firm engaging in a problematic search owing to their poor performances in the past, the CEO might be faced with the pressure to take initiative in a way that is distinguished from the firm’s previous course of action [15].

While engaging in foreign direct investment within the BRI participant countries may pose risks associated with the violent conflicts, early tenure CEOs have the incentive to take risks while considering the potential benefits of investing in such regions. First, operating in these BRI participant countries may grant access to various resources that are scarce. Specifically, conflict-prone countries often present opportunities for MNEs to gain access to valuable resources at a much lower cost [42].

Second, despite the fact that many firms encounter the liability of foreignness as they expand into global markets through FDI, investing in countries involved in the BRI offers a unique advantage. The BRI constitutes a bilateral contract between the Chinese government and the host country, which leads to the expectation of favorable treatment from the host country government. Consequently, this can reduce the level of the liability of foreignness for the firms investing in these countries [49,50].

Third, engagement in the project itself can serve as a signal of the CEO and their company’s willingness to cooperate with the government. CEOs may have strong incentives to establish such ties early on to prevent abrupt government interference in the future or to secure favorable treatment [51,52]. Considering the significant government support for the project, early tenure CEOs may also perceive that many of the risks posed by such regions will be somewhat mitigated.

On the other hand, the length that CEOs have retained their positions in the office can serve as an indicator of their demonstrated value within the firm. Given that CEO turnover is a result of struggles and competitions triggered by various political forces [47], the CEO position remains under constant scrutiny. Those who fail to meet the shareholders’ performance expectations are likely to encounter challenges in retaining their positions.

CEOs who have withstood the test of time often earn trust from various stakeholders, including the board of directors and shareholders, resulting in a heightened desire to preserve their legacy [14]. In certain cases, these CEOs have adeptly safeguarded their positions and effectively navigated the challenges encountered during their tenure. In such circumstances, there is little incentive for them to engage in activities that might expose them to unfamiliar risks. Furthermore, these long-serving CEOs may have already established strong relationships and developed a deep understanding of how to navigate interactions with the Chinese government, reducing the need to conform to national movements. Even when faced with pressure to undertake certain investments, CEOs with extensive tenures possess the power to resist such pressures [14,38]. In summary, long-tenured CEOs often display a tendency to avoid risky projects, given their track record and established internal dynamics [53].

Hypothesis 1 (H1).

The longer the CEO has retained their position in a firm, the less likely the firm is to invest in conflict-prone BRI participant countries.

2.4. Dominant Shareholder (Yigududa)

Chinese firms exhibit distinctive corporate governance traits, which include a highly concentrated ownership structure, significant government intervention, limited legal protection for shareholders, and a minimal market control mechanism [16,54]. As a result of these characteristics, the phenomenon of Yigududa, referring to dominant shareholders, has garnered considerable attention as a prevalent issue in Chinese firms. While concentrated ownership can offer benefits such as decision-making stability and swiftness, a dominant shareholder may exploit their position of power to prioritize their own interests at the expense of other shareholders. This can lead to a disregard for minority shareholder rights, resulting in a lack of transparency, unfair treatment, and potential conflicts of interest [55,56].

Previous studies have highlighted the impact of concentrated ownership on a firm’s decision-making process. Specifically, when ownership is concentrated among a small number of controlling shareholders, the firm tends to shy away from venturing into risky investment opportunities [25]. This cautious approach towards risk can be attributed to the desire of these dominant shareholders to safeguard their interests and preserve their controlling positions. As a result, early tenure CEOs who harbor ambitions of pursuing such risky investment projects may find themselves facing formidable opposition from these controlling shareholders. The concentration of ownership further strengthens the control exerted by these principals, making it challenging for CEOs to convince them of the potential benefits and viability of these investments [56].

On the other hand, the presence of a long-tenured CEO in a firm controlled by a dominant shareholder serves as a compelling indication of a shared vision between the CEO and these influential stakeholders. This alignment of vision reflects a mutual understanding and agreement on the strategic direction and objectives of the company. The risk-averse disposition of a dominant shareholder, combined with the inherent reluctance of a long-tenured CEO to engage in risky investments, may play a substantial role in diminishing the probability of the firm embarking on ventures in conflict-prone BRI participant countries.

Given that the careful and prudent approach adopted by dominant shareholders stems from their determination to safeguard their controlling interests and maintain stability within the organization, such a cautious stance is likely to reinforce the CEO’s wariness towards pursuing investments that involve significant risk. In other words, this convergence of interests creates a reinforcing effect, as both parties share a common aversion to risk and a preference for stable and secure investments.

Hypothesis 2 (H2).

The negative relationship between the time CEO served the firm and the likelihood of FDI in conflict-prone BRI participant countries will be positively moderated by the share owned by the dominant shareholder.

2.5. CEO Duality

CEO duality, characterized by the combination of the CEO and chairperson roles within the board of directors, has garnered significant attention from both scholars and industry professionals due to its profound influence on multiple facets of organizational functioning, including strategic decision making, performance outcomes, and governance considerations [57,58,59]. In this arrangement, given that a CEO has both the executive powers and the leadership role in governing the board, decisions can be made in a more timely and effective manner [60,61].

However, this concentration of power may also limit checks and balances within the firm, potentially hindering the board’s ability to provide independent oversight and challenge the CEO’s decisions [58,62,63]. While CEOs are generally assumed to possess unparalleled expertise regarding the industry and internal affairs of the firm, CEO duality enables the CEO to flexibly customize the content and information shared within the boardroom. Consequently, dual CEOs can leverage this information asymmetry to exert influence over the decision-making processes of the board [58]. In this regard, long-tenured CEOs that do not wish to undertake risky investments in conflict-prone BRI participant countries may stress downside risks of the project while downplaying the opportunities and upside potential of the project.

In addition, the long-tenured dual CEOs may not only gain trust among the board of directors over time but also appoint those that are like-minded. Many CEOs tend to hire and promote individuals who share a similar vision and perspective, resulting in greater homogeneity within the organization [14]. Dual CEOs who possess greater power in the firm may be able to further appoint the ones that are less likely to challenge the CEOs’ decisions or provide critical oversight and further support and reinforce the CEOs’ point of view, compromising the independence and objectivity of the board.

Furthermore, previous studies have consistently highlighted the risk-averse nature of dual CEOs. Organizations led by dual CEOs exhibit a reduced propensity to engage in risky endeavors compared to those with non-dual CEOs [26,27]. Moreover, dual CEOs display heightened caution in their international expansion initiatives, surpassing their non-dual CEO counterparts [57,64].

Taken together, long tenured CEOs that also serve as chairperson of their firms may have higher chances of reinforcing their point of views on the risky investment in the board. The reluctance of the CEO that preserved their position for a long time in the organization may be further reinforced as the CEO possesses the power they may exert over the board of directors.

Hypothesis 3 (H3).

The negative relationship between the time CEO served the firm and the likelihood of FDI in conflict-prone countries is accentuated by the CEO duality.

3. Methodology

3.1. Philosophical Approach, Methodological Choice, and Strategies

Embracing a positivist philosophical approach, this research endeavor is characterized by its commitment to empirical objectivity and systematic analysis. Rooted in the positivist paradigm, this study aims to uncover causal relationships and generalizable patterns through systematic observation and measurement. Specifically, this study is poised to uncover causal relationships between CEO tenure and risky investment decision. This positivist stance aligns perfectly with the methodological choice of quantitative analysis using panel data, allowing for a comprehensive exploration of the research questions [65,66].

Methodologically, the utilization of panel data analysis is a deliberate and strategic decision to enhance the rigor of this study. By leveraging longitudinal data collected over multiple time periods, this approach provides a unique opportunity to capture both cross-sectional variations and temporal changes within the business landscape. This temporal dimension allows for the examination of dynamic interactions and trends that may not be apparent in single cross-sectional studies. In conclusion, the alignment of a positivist philosophical approach with the methodological choice of panel data analysis underscores the rigorous and objective nature of this research endeavor.

3.2. Data and Sample

A sample of Chinese firms from the Shanghai and Shenzhen stock exchanges was collected to construct a novel panel dataset and test the previously mentioned hypotheses. The disclosure requirements for all listed Chinese firms provided access to detailed corporate governance and top executive compensation information, facilitating the investigation of the proposed relationships. Data on CEO tenure, duality, share owned by a dominant shareholder, and outward foreign direct investment (OFDI) were obtained from the China Stock Market and Accounting Research (CSMAR) database, widely used in China-related studies [67,68,69,70].

Conflict-prone countries among the member countries of the Belt and Road Initiative (BRI) were identified using the UCDP-PRIO Armed Conflict Dataset, a collaborative project between the Uppsala Conflict Data Program and the International Peace Research Institute [71,72]. To address concerns about potential political influence from the Chinese state [73], all state-owned enterprises (SOEs) and public firms with state equity were excluded from the sample [28]. Additionally, firms that do not own any foreign subsidiary in a foreign country were excluded to account for potential differences between firms engaged in OFDI and those that are not [12]. Furthermore, considering that the BRI was launched in 2013, only the firms that undertook FDI after the day the project was launched were included in the sample. The final sample consisted of 1140 privately owned Chinese multinational enterprises (MNEs) that directly invested in at least one foreign country between 2013 and 2019. Each firm appears throughout the observation period unless the firm has divested all of its foreign subsidiaries.

3.3. Variables and Measure

The dependent variable in this study is the likelihood of OFDI in conflict-prone countries participating in the BRI. It is represented as a binary variable, taking values of 1 or 0 to indicate whether a company had undertaken FDI or not [74]. Three independent variables were used to test the hypotheses: (1) CEO tenure, (2) share owned by the dominant shareholder, and (3) CEO duality. CEO tenure was measured using the logarithm of the total number of years a specific individual had served as the chief executive officer within a company, following the approach of previous studies [13,15,31].

The second independent variable, the share owned by the dominant shareholder, was represented by the number of shares owned by the biggest shareholder of a firm [47]. Although previous studies have employed the ratio of shares held by the top five or ten largest shareholders as a metric for ownership concentration [75,76], an alternative measure was chosen, considering the substantial stake held by the largest shareholder within the Chinese context. Subsequently, the variable was transformed into logarithmic form. The third independent variable is CEO duality, which was captured by a binary variable that took a value of 1 if the CEO served as the chairman of the board [17].

Various variables at different levels that could potentially impact the likelihood of investment were incorporated into the analysis. To consider a firm’s financial capability in supporting FDI decisions, control variables such as firm size, performance, and intangible assets were included [5]. Firm size was assessed using the logarithm of total assets, as larger firms are more likely to have stable revenue streams that can be internationalized. Firm performance was measured by return on assets, as firms with better performance would have sufficient resources for internationalization [77]. Intangible assets were accounted for since they offer advantages in internationalization [78]. To capture firm experience, the logarithm of cumulative years of operation in a specific country was utilized [79]. Additionally, board size was considered by counting the number of serving directors, as it reflects firm resources and experiences and also the firm’s ability to constrain controlling shareholders’ power [74]. The shareholding ratio of the chairman was controlled for to consider the chairman’s influence on investment decisions, and separate ratios of independent directors and supervisory directors were also taken into account.

At the CEO level, the methodologies employed in previous studies were followed to control for CEO characteristics. A dummy variable was used to measure CEO gender, and CEO salary was included to account for the CEO’s level of risk preference [12]. Additionally, industry and year dummy variables were incorporated to account for unobserved effects.

4. Results

Table 1. Correlation matrix.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)
(1) Risky FDI	1
(2) CEO tenure	−0.11 *	1
(3) Dominant shareholder	−0.36 *	−0.11 *	1
(4) CEO duality	0.09 *	−0.22 *	0.02 *	1
(5) Shareholding ratio of chairperson	−0.05 *	0.15 *	0.03	−0.12 *	1
(6) Firm performance	−0.01	−0.01	−0.03 *	−0.02 *	0.02 *	1
(7) Supervisory board ratio	0.02 *	−0.07 *	0.04 *	0.06 *	−0.11 *	−0.02 *	1
(8) Independent director ratio	−0.10 *	0.24 *	−0.07 *	−0.22 *	0.18 *	0.01 *	0.01
(9) CEO salary	−0.14 *	0.28 *	−0.22 *	−0.28 *	0.01	0.02	−0.07 *
(10) CEO gender	−0.02 *	−0.01 *	0.01	0.31 *	−0.05 *	−0.02 *	0.01
(11) Board size	0.02 *	−0.08 *	−0.02	0.06 *	−0.20 *	0.01 *	−0.34 *
(12) Intangible asset	−0.02 *	0.03 *	−0.08 *	−0.04 *	−0.02 *	−0.01 *	−0.01 *
(13) Firm experience	−0.04 *	0.23 *	−0.07 *	−0.11 *	−0.15 *	−0.01	0.03 *
(14) Firm size	−0.19 *	0.19 *	−0.30 *	−0.18 *	−0.15 *	0.01 *	0.05 *
Variables	(8)	(9)	(10)	(11)	(12)	(13)	(14)
(8) Independent director ratio	1
(9) CEO salary	0.27 *	1
(10) CEO gender	−0.04 *	0.01	1
(11) Board size	−0.27 *	0.06 *	0.08 *	1
(12) Intangible asset	0.04 *	−0.04 *	−0.01	−0.01	1
(13) Firm experience	0.06 *	0.22 *	−0.02 *	−0.04 *	0.04 *	1
(14) Firm size	0.20 *	0.47 *	0.04 *	0.25 *	−0.01	0.23 *	1

Notes: * p < 0.05.

displays the correlation matrix. The coefficients within the matrix are observed to have low values, indicating a lack of significant multicollinearity among the variables. To reinforce this observation, variance inflation factors (VIF) were calculated to assess the potential presence of multicollinearity. Notably, all VIF values for the variables utilized in the estimation were determined to be below 1.7, further affirming the absence of substantial multicollinearity concerns. Moreover, the mean VIF value of 1.22 provides additional support for the conclusion that our model does not suffer from multicollinearity issues.

Table 2. CEO tenure and FDI likelihood in conflict-prone BRI participant countries (logistics regression).

	Model 1	Model 2	Model 3	Model 4	Model 5
Variables	(Controls Only)	(Hypothesis 1)	(Hypothesis 2)	(Hypothesis 3)	(Full Model)
Control variables
Chairman’s shareholding	−0.0228 ***	0.0050	0.0050	0.0048	0.0048
	[0.004]	[0.010]	[0.010]	[0.010]	[0.010]
Firm performance	−0.0168	−2.6983 **	−2.7124 **	−2.7906 ***	−2.8022 ***
	[0.070]	[1.060]	[1.058]	[1.064]	[1.063]
Supervisory board	0.9104 **	−1.8156	−1.9519	−1.8742	−1.9959
	[0.404]	[1.242]	[1.257]	[1.246]	[1.261]
Independent directors	0.3058	−0.3929	−0.3862	−0.5351	−0.5162
	[0.711]	[1.941]	[1.960]	[1.943]	[1.961]
CEO salary	−0.2197 ***	−0.4974 ***	−0.4902 ***	−0.4864 ***	−0.4800 ***
	[0.044]	[0.128]	[0.128]	[0.128]	[0.128]
CEO gender	−0.5708 ***	−0.9137 *	−0.9066 *	−0.9052 *	−0.8957 *
	[0.158]	[0.504]	[0.507]	[0.506]	[0.510]
Board size	0.4969 **	−0.1245	−0.1247	−0.1133	−0.1107
	[0.251]	[0.761]	[0.770]	[0.764]	[0.773]
Intangible assets	−1.8209 ***	−12.4459 ***	−12.1096 ***	−12.5071 ***	−12.1705 ***
	[0.637]	[3.101]	[3.092]	[3.110]	[3.104]
Firm experience	−0.2900 ***	0.0974	0.1417	0.1221	0.1649
	[0.100]	[0.324]	[0.326]	[0.325]	[0.327]
Firm size	−0.5065 ***	0.3219 ***	0.3241 ***	0.3146 ***	0.3170 ***
	[0.038]	[0.111]	[0.111]	[0.111]	[0.112]
Variables of interest
CEO tenure (H1)		−0.5265 ***	−0.8628 ***	−0.3386 **	−0.6766 ***
		[0.126]	[0.179]	[0.161]	[0.209]
Dominant shareholder		−3.1157 ***	−2.6092 ***	−3.1279 ***	−2.6331 ***
		[0.179]	[0.263]	[0.180]	[0.264]
CEO duality		−0.1088	−0.1089	0.4086	0.3703
		[0.186]	[0.187]	[0.337]	[0.333]
CEO tenure * Dominant shareholder (H2)			−0.3814 ***		−0.3719 **
			[0.147]		[0.148]
CEO tenure * CEO duality (H3)				−0.3977 *	−0.3752 *
				[0.215]	[0.216]
Year dummy	Yes	Yes	Yes	Yes	Yes
Industry dummy	Yes	Yes	Yes	Yes	Yes
Observations	22,540	4911	4911	4911	4911
Number of firms	2548	1140	1140	1140	1140
Log likelihood	−7251	−1405	−1402	−1404	−1400

Standard errors in brackets, *** p < 0.01, ** p < 0.05, * p < 0.1.

presents the comprehensive outcomes of the models employed to examine the influence of CEO tenure on the likelihood of investment in conflict-prone Belt and Road Initiative (BRI) participant countries. Considering the binary nature of the dependent variable in this study, in line with established research in the field, logistic regression was employed as the analytical method to examine the hypothesized relationships [80]. Logistic regression has been commonly employed in research on foreign direct investment to estimate the probability of an event occurring [81,82]. Logistic regression was utilized to calculate coefficients through maximum likelihood computations, which are based on the log odds of a firm’s investment in at least one conflict-prone BRI participant country. Coefficients and p-values are presented in Table 2 to interpret the results of the empirical tests.

In model 1 of Table 2, the analysis focused solely on the inclusion of control variables. Notably, variables such as the share owned by the shareholding ratio of the president, ratio of the supervisory board members, CEO salary, CEO gender, board size, intangible assets, firm experience, and firm size were observed to exert a significant influence on the likelihood of investment in conflict-affected BRI participant countries. Importantly, the coefficients associated with these variables demonstrated statistical significance at the p < 0.05 level or higher. In the subsequent models, upon integrating the variables of interest, it became evident that firm performance yielded a notable adverse impact on the likelihood of investment. This outcome aligns harmoniously with the projections of prospect theory, positing that a firm in a gain frame adopts risk-averse attitudes, consequently diminishing its propensity for venturing into precarious investment endeavors [9]. In a similar vein, CEO salary showed negative association with the investment likelihood. This result serves to underscore the findings of the previous studies that undercompensated CEOs may voluntarily engage in risky investment project to make up for their lack of compensation [12]. Furthermore, the negative relationship between CEO gender and risky investment likelihood reaffirms the notion that female executives exhibit greater tendency to make more conservative investment choices [32].

In model 2, CEO tenure, the variable of interest, was included as independent variables to test Hypothesis 1, which posits a reduced likelihood of firms with long-tenured CEOs investing in conflict-affected countries. The variable produces negative and significant coefficient (β = −0.5265, p < 0.01), indicating that as CEOs serve longer tenures within a given firm, they exhibit a decreased propensity to invest in conflict-prone BRI countries. Notably, this consistent pattern persisted across the subsequent models, reinforcing the support for Hypothesis 1. These findings contribute to our understanding of the intricate dynamics between CEO tenure and investment decisions in conflict-affected regions, lending empirical support to the hypothesized relationship. Incorporated as independent variables in Model 2 were both the dominant shareholder and CEO duality. It is noteworthy that while CEO duality failed to yield a statistically significant coefficient within the model, the dominant shareholder displayed a notable and statistically significant negative influence on the likelihood of investment in conflict-prone BRI participant countries (β = −3.1157, p < 0.01). This particular outcome underscores the insight that heightened ownership concentration within a firm is inversely related to the inclination to undertake risky investment initiatives, thereby reinforcing the assertions of previous studies concerning the influence of dominant shareholders [25,56].

In models 3 and 4, interaction variables were introduced to test Hypothesis 2 and Hypothesis 3, respectively, which posit moderating effects of dominant shareholder and CEO duality, respectively. Model 3 specifically focused on the moderating effect of the dominant shareholder, which was found to have a negative and statistically significant impact on the relationship (β = −0.3814, p < 0.01). To provide a more detailed illustration of this moderating effect, Figure 1 exhibits the relative investment likelihood in conflict-affected BRI participant countries for MNEs with varying levels of dominant shareholder ownership. Notably, Figure 1 demonstrates that when combined with a dominant shareholder, the inclination of long-tenured CEOs to avoid risky investments is likely to be heightened, thereby providing empirical support for Hypothesis 2.

Regarding Hypothesis 3, the analysis conducted in model 4 revealed a significant and negative moderating effect of CEO duality on the relationship between CEO tenure and investment likelihood (β = −0.3977, p < 0.1). This finding indicates that when CEO duality is present, it further diminishes the likelihood of investment in conflict-affected BRI participant countries by Chinese MNEs. The confirmation of this hypothesis is visually depicted in Figure 2, which illustrates the decreasing investment likelihood as a result of the combined influence of CEO duality and CEO tenure. Furthermore, when considering the full model, which includes both interaction terms, consistent results were obtained, providing robust evidence that supports all three hypothesized relationships.

Model 5 robustly affirms the anticipated relationships, exhibiting levels of significance that lend strong validity to the hypothesized relationships. Specifically, the coefficient of −0.6766, holding a significance level of p < 0.01, underscores that as the tenure of a CEO within a firm extends, the probability of the firm embarking on foreign direct investment endeavors in conflict-prone BRI participant countries diminishes. Notably, this influence is further accentuated by the presence of concentrated ownership (β = −0.3719, p < 0.05), wherein a pronounced ownership concentration intensifies the effect. Similarly, the prospect of the firm participating in ventures deemed as risky investments experiences a decrease in probability when a long-tenured CEO concurrently assumes the role of the chairman of the board (β = −0.3752, p < 0.1). In essence, all three hypotheses garner comprehensive validation within this model, thus elevating the robustness of the study’s findings.

5. Discussion and Conclusions

5.1. Discussion

This study aimed to investigate the underlying reasons behind investment decisions made by private firms in conflict-prone Belt and Road Initiative (BRI) participant countries, despite the apparent risks involved. Unlike the previous studies that focused on the roles played by firm-specific resources that help coping with the risks in conflict-prone countries, with a specific focus on the tenure of CEOs and governance characteristics of Chinese MNEs, this study sought to analyze how the investment decisions of Chinese private firms in BRI participant countries are influenced and shaped. The comprehensive empirical findings strongly indicate that the longer a CEO retains their position within a firm, the less likely that firm is to engage in investments within conflict-prone BRI participant countries. This study discovered that CEOs in the early stages of their tenure may possess a stronger incentive to undertake the risks associated with such investments, as a means to solidify their position within the firm and establish political connections. However, CEOs with longer tenures are significantly less inclined to pursue such projects, primarily due to concerns regarding the preservation of the firm’s legacy. This finding is consistent with those of the previous studies that investigated the impact of CEO characteristics on a firm’s decision-making process [10,17,27,34]. It is widely argued that the likelihood of a firm pursuing a risky investment project may be intricately tied to the CEO’s individual inclinations, often spurred by the prevailing circumstances they are situated in, rather than solely factoring in the firm’s resources or its evaluation of the project’s potential outcomes [12,17,38]. In this regard, the present study effectively bolsters this notion, thereby providing further substantiation by underscoring how a CEO’s perspectives concerning priorities and risk preferences are inextricably linked to their tenure in the leadership role [38,57,67].

Moreover, this research delved deeper into the intricate dynamics of Chinese private firms by examining the role of governance characteristics in relation to investment decisions. Notably, the empirical results revealed that the influence of CEO tenure on investment choices is contingent upon the presence of dominant shareholders, a phenomenon commonly referred to as Yigududa in China. In firms where a dominant shareholder holds sway, the likelihood of investment in conflict-prone BRI participant countries is further diminished. In line with the previous studies in the stream, although did not test as a separate hypothesis, this research reconfirmed that dominant shareholders alone may exert negative effect on risk-taking investment [25]. This can be attributed to the risk-averse nature typically exhibited by these dominant and controlling shareholders, who tend to steer clear of ventures with inherent risks. Consequently, when combined with the inclination of long-tenured CEOs to safeguard their firm’s legacy, the aversion towards such investment opportunities becomes even more pronounced.

On the other hand, this study also examined the impact of CEO duality, wherein the CEO simultaneously holds the position of the chairperson of the board of directors. In many private firms in China, this duality exists and can play a significant role in shaping investment decisions in conflict-prone BRI participant countries. The concentration of power wielded by the CEO through this duality enables them to exert influence over the board of directors. In this context, the reluctance of a CEO who has maintained their position within the firm for an extended period is further reinforced. The preservation of their tenure and the desire to solidify their position are augmented by the CEO’s authoritative role, potentially leading to a greater inclination towards investment opportunities in conflict-prone BRI participant countries. While a consensus exists regarding the augmenting effect of CEO duality on CEOs’ risk-averse inclinations, the landscape of studies within this field has yielded diverse outcomes concerning the influence of CEO risk aversion on OFDI decisions. Interestingly, contrary to the predictions of previous studies, suggesting that dual CEOs might pursue diversification as a strategy for mitigating risks [27], the current study’s findings present a nuanced perspective. Specifically, the findings of this study indicate that the pursuit of geographic diversification might not be a prominent risk-mitigation tactic embraced by dual CEOs, particularly depending on the host country’s inherent risk factors. Remarkably, this observation finds resonance with the insights presented by Ellstrand et al. [64], wherein it is posited that dual CEOs tend to favor international investments that promise performance with a low level of uncertainty. This convergence of findings underscores the complexity of the relationship between CEO characteristics, risk aversion, and the strategic pathways chosen in the context of international investments.

5.2. Implication

The findings of the study offer contributions to the existing studies. First, by investigating the investment choices of firms in conflict-prone BRI participant countries, this study offers a deeper understanding of the motivations and decision-making processes of CEOs in such high-risk environments. While the BRI was initially led by the SOEs, now it is becoming a great platform for private firms to internationalize [6,23]. Despite the increasing number of private firms choosing BRI as a platform to engage in internationalization, we have limited understanding of why some firms choose to bear the risks associated with the project. While many of previous studies examined how firm-level resources of MNEs from developed countries affect their investment in conflict-prone countries [7,8,83], this study unveils governance-specific determinants of risky investments in the context of private firms’ investment in conflict-prone BRI participant countries. In doing so, this study complements the previous studies in the stream of corporate governance by showing how the risk-preference of an agent (CEO) interacts with other governance characteristics to affect a firm’s investment decision [12,84].

Second, this study suggests an appropriate governance structure to prevent the agency issues by exploring the intricate relationship between CEO tenure and governance characteristics within Chinese private firms. Specifically, this study uncovers how the presence of dominant shareholders, often associated with risk-averse attitudes, further inhibits investment in conflict-prone BRI participant countries [25]. This aspect underscores the importance of considering the broader organizational context and governance structures when examining the impact of CEO tenure on investment likelihood. To effectively address the agency issues stemming from CEO tenure, firms must give careful attention to the composition of their board of directors. By strategically composing the board of directors, firms can establish a governance structure that ensures a balanced decision-making process and reduces the risk of agency problems.

Lastly, the findings of this study offer valuable guidance for formulating economic policies related to the sustainable development through the BRI. Despite the initial goal of the BRI to promote economic cooperation between China and the participant countries, there has been increasing criticism regarding its adverse effects on the environmental and economic conditions of these countries [28,29]. This study suggests that improving the governance structure of Chinese private firms may not only contribute to the economic conditions but also the environmental well-being of the participant countries. In particular, many conflict-affected countries suffer from severe economic collapse, making it crucial to prevent significant decreases and outflows of foreign investment [4,8]. Restructuring the corporate governance system to promote entrepreneurial risk-taking behavior of firms could positively impact the sustainable economic development of both investing firms and the economies of conflict-affected countries. Moreover, governance reforms that ensure better representation of the voices of minority shareholders may lead investing firms to become more transparent regarding their impact on the environment in the participant countries [30,85,86]. By addressing these aspects, the BRI can move towards a more sustainable and mutually beneficial economic collaboration.

5.3. Limitations and Future Research

In common with other studies, this study is not without its limitations. Firstly, despite excluding SOEs from the sample, it is possible that some CEOs included in the study may have affiliations with the Chinese Communist Party or possess close ties to the state. As a result, these CEOs may face stronger pressure or incentives to participate in the BRI. Future research, utilizing comprehensive data, could explore whether CEOs’ relationships with the state influence their inclination to invest in conflict-prone countries through this state-led project. Secondly, the dependent variable used in this study captures the overall investment of MNEs in host countries at an aggregate level. Consequently, it was not feasible to control host-country-related factors that may either attract or hinder the outward foreign direct investment (OFDI) activities of emerging market multinationals. Future studies, employing alternative measures of OFDI, could examine how host-country-related factors may impact the hypothesized relationships. Lastly, although the quantitative analysis using a panel dataset aligns well with the empirical setting to test the hypothesized relationships considering the philosophical approach of the current study, it is important to acknowledge the potential for some CEOs to display divergent behavior due to the inherent diversity in their personal attributes. These individual characteristics, not captured by the archival data utilized in this research, may contribute to varying patterns [34]. To gain a deeper comprehension of how CEOs’ personal traits impact the hypothesized relationships, future investigations could explore additional factors such as narcissism, ideology, and openness to experience [34,35,36]. Future studies may use alternative research methodologies, such as qualitative analyses or mixed methods, allowing for a more comprehensive understanding of the intricate interplay between personal characteristics and the dynamics under investigation.