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Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Companies

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  • Marie E Wicks Kelly

    (McKinsey and Company)

  • George C Philippatos

    (The University of Tennessee)

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    Abstract

    A large sample of U.S.-based manufacturing multinational companies were surveyed regarding their investment valuation practices. It was found that: (a) Foreign Direct Manufacturing Investment (FDMI) is motivated primarily by profit rather than the recently proposed behavioral considerations; (b) the majority of companies practice project-by-project analysis of the simple accept/reject type, rather than the comparative project analysis advocated by financial analysts; (c) most of the companies utilized criteria for single investments, cash-flows, and cost of capital that were in general agreement with the analytical literature; (d) companies were concerned more with business risk than currency and political risks—moreover, all three types of risk were evaluated subjectively and accounted through adjustments in the required rates of return rather than the cash flows of the FDMI, as specified in financial research; (e) analysis of demographic and behavioral variables for possible relationships to FDMI evaluation practices yielded interesting but variable specific results. The questionnaires were mailed in May 1979 and the personal interviews were conducted during December 1979 and the first six months of 1980.© 1982 JIBS. Journal of International Business Studies (1982) 13, 19–42

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 13 (1982)
    Issue (Month): 3 (September)
    Pages: 19-42

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    Handle: RePEc:pal:jintbs:v:13:y:1982:i:3:p:19-42

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    Cited by:
    1. Larimo, Jorma, 1995. "The foreign direct investment decision process: Case studies of different types of decision processes in finnish firms," Journal of Business Research, Elsevier, vol. 33(1), pages 25-55, May.
    2. Gregory Clare & Ira N. Gang, 2009. "Exchange Rate and Political Risks, Again," Departmental Working Papers 200903, Rutgers University, Department of Economics.
    3. Peter Markovič & Michal Šinský, 2009. "Trends in application of capital budgeting methods for investment projects evaluation," Ekonomika a Management, University of Economics, Prague, vol. 2009(1).
    4. Shao, Lawrence Peter, 1997. "Capital structure norms among foreign subsidiaries of U.S. multinational enterprises," Global Finance Journal, Elsevier, vol. 8(1), pages 145-157.

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