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Asset Ownership and Foreign-Market Entry

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  • Raff, Horst
  • Ryan, Michael
  • Stähler, Frank

Abstract

This paper examines the link between a firm?s owership of productive assets and its choice of foreign-market entry strategy. We find that, controlling for industry- and country-specific characteristics, the most productive firms (i.e., those owning the most assets) will enter through greenfield investment, less productive ones will choose M&A, and the least productive ones will export. In addition, the most productive firms are shown to prefer whole ownership to a joint venture. These predictions are confirmed in an econometric analysis of Japanese firm-level data. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2006,01.

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Date of creation: 2005
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Handle: RePEc:zbw:cauewp:3875

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Keywords: Foreign direct investment; merger and acquisition; joint venture; greenfield investment; firm heterogeneity; productivity;

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References

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  1. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 605-618, June.
  2. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  3. Elizabeth Asiedu & Hadi Salehi Esfahani, 2001. "Ownership Structure In Foreign Direct Investment Projects," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 647-662, November.
  4. Volker Nocke & Stephen Yeaple, 2004. "Mergers and the Composition of International Commerce," NBER Working Papers 10405, National Bureau of Economic Research, Inc.
  5. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
  6. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2302, C.E.P.R. Discussion Papers.
  7. Sourafel Girma & Richard Kneller & Mauro Pisu, 2005. "Exports versus FDI: An Empirical Test," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 141(2), pages 193-218, July.
  8. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  9. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
  10. Sang-Seung Yi, 1998. "Endogenous Formation of Joint Ventures with Efficiency Gains," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 610-631, Autumn.
  11. Zitouna, Habib & Mucchielli, Jean-Louis & Bertrand, Olivier, 2004. "Location Choices of Multinational Firms : The Case of Mergers and Acquisitions," HWWA Discussion Papers 274, Hamburg Institute of International Economics (HWWA).
  12. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "International Joint Ventures and the Boundaries of the Firm," NBER Working Papers 9115, National Bureau of Economic Research, Inc.
  13. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  14. Head, Keith & Ries, John, 2003. "Heterogeneity and the FDI versus export decision of Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 448-467, December.
  15. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  16. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, Elsevier, vol. 48(6), pages 1211-1226, December.
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Citations

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Cited by:
  1. Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5592, C.E.P.R. Discussion Papers.
  2. GABSZEWICZ, Jean & LAUSSEL, Didier & TAROLA, Ornella, 2008. "To acquire, or to compete? An entry dilemna," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Lehner, Maria, 2008. "Entry Mode Choice of Multinational Banks," Discussion Papers in Economics 8222, University of Munich, Department of Economics.
  4. Katariina Nilsson Hakkala & Olivier Bertrand & Norbäck Pehr-Johan & Persson Lars, 2008. "Should R&D Champions be Protected from Foreign Takeovers?," Discussion Papers, Government Institute for Economic Research Finland (VATT) 459, Government Institute for Economic Research Finland (VATT).
  5. Caterina Giannetti & Nicola Jentzsch & Giancarlo Spagnolo, 2010. "Information Sharing and Cross-border Entry in European Banking," CEIS Research Paper 178, Tor Vergata University, CEIS, revised 21 Dec 2010.
  6. Lehner, Maria, 2009. "Entry mode choice of multinational banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(10), pages 1781-1792, October.
  7. Raff, Horst & Ryan, Michael & Stähler, Frank, 2009. "The choice of market entry mode: Greenfield investment, M&A and joint venture," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(1), pages 3-10, January.
  8. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, Elsevier, vol. 59(C), pages 97-108.
  9. Tarola, Ornella, 2013. "Acquisition vsus de novo entry: A theoretical appraisal," Research in Economics, Elsevier, Elsevier, vol. 67(2), pages 179-188.
  10. Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers, University of Otago, Department of Economics 0910, University of Otago, Department of Economics, revised Oct 2009.

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