Acquired versus Non-Acquired Subsidiaries - Which Entry Mode do Parent Firms Prefer
AbstractDespite the economic importance of international foreign direct investment (FDI) flows, investment decisions of multinational firms are not well understood. A multinational firm can establish a subsidiary in a foreign country through greenfield investment or through acquiring an existing firm in the target country. The goal of this paper is to shed some light on the determinants of foreign market entry modes. In particular to analyze the systematic variation in the mode choice of FDI, namely acquisition versus non-acquisition (greenfield) investments. We propose a transparent and general applicable method to construct a data base. This database includes information about parent firms and their majority owned affiliates in foreign countries. A particular feature is the construction of a variable which allows to differentiate the establishment mode of parent firms into foreign markets. For this purpose two databases from the Bureau van Dijk are interlinked: Osiris and Zephyr. We provide evidence that firm heterogeneity is important for U.S. multinational firms in determining their entry mode choice. However, this is not a distinguishing feature for European multinational firms. For both sets of parent firms the host country characteristics play an important role in deciding on the entry mode. Higher institutional quality increases the likelihood of acquisitions versus greenfield investments.
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Bibliographic InfoPaper provided by The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria in its series NRN working papers with number 2010-22.
Length: 41 pages
Date of creation: Dec 2010
Date of revision:
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Postal: NRN Labor Economics and the Welfare State, c/o Rudolf Winter-Ebmer, Altenbergerstr. 69, 4040 Linz
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More information through EDIRC
Acquisition; Greenfield; Subsidiaries; Mode Choice; FDI; Institutions;
Find related papers by JEL classification:
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- P5 - Economic Systems - - Comparative Economic Systems
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