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

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.