Wolfgang Sofka 
Copenhagen Business School, Denmark

Abstract:

For most multinational corporations (MNCs), conducting R&D in China is a double-edged sword. It offers unique access to local knowledge and talent, but risks valuable knowledge spilling over to Chinese competitors. Although this risk-return tradeoff is central to firm-level theory on global R&D, the CEO, as key decision maker, is largely absent from it.

Microfoundational theory suggests that CEO overconfidence becomes especially salient when firms face high-risk, high-return decisions. Integrating these mechanisms, the study hypothesizes that MNCs with overconfident CEOs conduct more R&D in China. This effect is expected to strengthen as risks and returns accumulate: when MNCs operate in technologies prioritized by the Chinese government and when US-China geopolitical tensions rise. We further argue that the effect strengthens as risks and returns accumulate: when MNCs operate in technologies prioritized by the Chinese government, and when US-China geopolitical tensions rise.

These predictions are tested using the inventor locations of US MNC patents and CEO overconfidence measured through personal investment decisions. An instrumental variable analysis of 907 MNCs from 2000 to 2022 supports the hypotheses.

Wolfgang Sofka is a Professor for Strategic and International Management at Copenhagen Business School and the part-time Chair in International Business at the University of Liverpool. His research focuses on how firms generate, protect, and commercialize innovative ideas and strategic human capital. It also addresses societal challenges. He investigates how refugee hiring enhances organizational performance, and contributes to gender equality by analyzing how foreign multinational subsidiaries mitigate wage discrimination. His work on coordinated innovation tackles grand challenges through collaborative search. Sofka’s expertise in strategic human capital, innovation, and knowledge management informs policy and practice. His findings, published in leading journals such as the Academy of Management Journal, Strategic Management Journal, Organization Science, Journal of International Business Studies, and Research Policy, and shared with international organizations including the European Commission and the International Monetary Fund, help companies acquire, leverage and safeguard talent and intellectual assets for sustainable success.