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Do Foreign Greenfields Outperform Foreign Acquisitions or Vice Versa? An Institutional Perspective

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  • Arjen H. L. Slangen
  • Jean-François Hennart

Abstract

Prior studies of the comparative performance of greenfields and acquisitions have advanced competing arguments, with some arguing that greenfields should outperform acquisitions because acquisitions are costlier to integrate, and others that acquisitions should outperform greenfields because greenfields suffer from a liability of newness. Moreover, while the costs of integration and the liability of newness are at their greatest during a subsidiary's first years, prior studies have tested their competing arguments on samples containing older subsidiaries. We extend these prior studies by (1) developing an institutional theory-based framework that simultaneously considers the costs of integration and the liability of newness, (2) recognizing that both types of costs vary with the level of subsidiary integration, and (3) focusing on the stage of their life during which subsidiaries predominantly incur these costs. To measure subsidiary performance, we ask managers of Dutch multinationals how their "ex ante" performance expectations compare to the subsidiary's "ex post" performance during its first two years. Analysing a sample of 191 foreign subsidiaries and controlling for entry mode self-selection and other factors, we find that acquisitions outperform greenfields at low and intermediate levels of subsidiary integration, but that greenfields outperform acquisitions at higher integration levels. Copyright (c) Blackwell Publishing Ltd 2008.

Suggested Citation

  • Arjen H. L. Slangen & Jean-François Hennart, 2008. "Do Foreign Greenfields Outperform Foreign Acquisitions or Vice Versa? An Institutional Perspective," Journal of Management Studies, Wiley Blackwell, vol. 45(7), pages 1301-1328, November.
  • Handle: RePEc:bla:jomstd:v:45:y:2008:i:7:p:1301-1328
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    1. repec:eee:iburev:v:27:y:2018:i:1:p:231-245 is not listed on IDEAS
    2. Klaus Meyer & Ornjira Thaijongrak, 2013. "The dynamics of emerging economy MNEs: How the internationalization process model can guide future research," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1125-1153, December.
    3. Isabel Álvarez & Raquel Marín & Franciso J. Santos-Arteaga, 2011. "FDI entry modes, development and technological spillovers," Working Papers del Instituto Complutense de Estudios Internacionales 1104, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    4. Chris Changwha Chung & Simon Shufeng Xiao & Jeoung Yul Lee & Jingoo Kang, 2016. "The Interplay of Top-down Institutional Pressures and Bottom-up Responses of Transition Economy Firms on FDI Entry Mode Choices," Management International Review, Springer, vol. 56(5), pages 699-732, October.
    5. 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.
    6. Suma Athreye & Georgios Batsakis & Satwinder Singh, 2013. "Subsidiary Embeddedness is a Strategic Choice: Complementarity and the factors associated with different types of embeddedness," DRUID Working Papers 13-05, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    7. Nguyen, Quyen T.K. & Rugman, Alan M., 2015. "Multinational subsidiary sales and performance in South East Asia," International Business Review, Elsevier, vol. 24(1), pages 115-123.
    8. repec:spr:manint:v:58:y:2018:i:1:d:10.1007_s11575-017-0334-y is not listed on IDEAS
    9. Georgopoulos, Antonios & Preusse, Heinz Gert, 2009. "Cross-border acquisitions vs. Greenfield investment: A comparative performance analysis in Greece," International Business Review, Elsevier, vol. 18(6), pages 592-605, December.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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