Real options and the theory of foreign direct investment
AbstractWe extend applications of real options theory to foreign direct investment (FDI) research regarding choice of location and choice of market entry mode under uncertainty. Our study is motivated by the regional configuration of multinational enterprises (MNEs), as well as observed deviations from the stages model in internationalization theory. We shed light on these issues using real option modeling and computer simulations. The results suggest that from the standpoint of pursuing business opportunities and generating real options, building a subsidiary in a nonhome region could be more beneficial than in a home region. However, high option exercise cost may reduce the option value of a nonhome-region location. Our models also imply that choice of entry mode depends on the magnitude (high vs. low) and the type (exogenous vs. endogenous) of uncertainty. When uncertainty is high and endogenous, MNEs may prefer high-commitment entry modes because they contribute to the reduction of uncertainty and provide valuable growth options.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Business Review.
Volume (Year): 16 (2007)
Issue (Month): 6 (December)
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Sala, Davide & Yalcin, Erdal, 2012. "Export experience of managers and the internationalization of firms," Discussion Papers of Business and Economics 18/2012, Department of Business and Economics, University of Southern Denmark.
- Davide Sala & Erdal Yalcin, 2012. "Export Experience of Managers and the Internationalization of Firms," Ifo Working Paper Series Ifo Working Paper No. 139, Ifo Institute for Economic Research at the University of Munich.
- Ren� Belderbos & Jianglei Zou, 2007.
"On the growth of foreign affiliates: multinational plant networks, joint ventures, and flexibility,"
Journal of International Business Studies,
Palgrave Macmillan, vol. 38(7), pages 1095-1112, December.
- Belderbos, Rene & Zou, J, 2007. "On the growth of foreign affiliates: Multinational plant networks, joint ventures, and flexibility," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/120601, Katholieke Universiteit Leuven.
- Kemp-Benedict, Eric, 2012. "The national bioenergy investment model: Technical documentation," MPRA Paper 37835, University Library of Munich, Germany.
- Marlene Grande & Aurora A. C. Teixeira, 2011. "Linking entry mode choices of MNCs with countries’ corruption. A review," OBEGEF Working Papers 008, OBEGEF - Observatório de Economia e Gestão de Fraude & OBEGEF Working Papers on Fraud and Corruption.
- Belderbos, Rene & Tong, Tony W. & Wu, Shubin, 2012. "Multinationality and downside risk: The contingent roles of option portfolio characteristics and organizational factors," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/355164, Katholieke Universiteit Leuven.
- Dinuk Jayasuriya, 2011. "Improvements in the World Bank's Ease of Doing Business Rankings: Do they translate into greater foreign direct investment inflows?," Development Policy Centre Discussion Papers 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
- Tony Tong & Jing Li, 2008. "Real options and MNE strategies in Asia Pacific," Asia Pacific Journal of Management, Springer, vol. 25(1), pages 153-169, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.