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Diversification, Exchange Risks and Corporate International Investment

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  • Jongmooo Jay Choi

    (Temple University)

Abstract

All international investments inevitably have some diversification consequences. Yet the literature on foreign direct investment accords only a limited role to diversification or financial variables. This paper develops a theory of corporate international investment from the standpoint of finance in an environment where the segmentation of international capital markets for individuals or the presence of agency costs provide some independence to corporate decisions separate from shareholders. The model does not depend on any particular advantage of multinational firms, and is specifies the stochastic properties of domestic and foreign output and input prices. It is found that real exchange risk and diversification gains affect corporate international investment in a significant way. It is also shown that the model embodies several existing explanations based on behavioral and economic variables.© 1989 JIBS. Journal of International Business Studies (1989) 20, 145–155

Suggested Citation

  • Jongmooo Jay Choi, 1989. "Diversification, Exchange Risks and Corporate International Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 20(1), pages 145-155, March.
  • Handle: RePEc:pal:jintbs:v:20:y:1989:i:1:p:145-155
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    Cited by:

    1. Choi, Jongmoo Jay, 1995. "The Japanese and US stock prices: A comparative fundamental analysis," Japan and the World Economy, Elsevier, vol. 7(3), pages 347-360, September.
    2. Bellalah, Mondher & Bradford, Marc & Zhang, Detao, 2016. "A general theory of corporate international investment under incomplete information, short sales and taxes," Economic Modelling, Elsevier, vol. 58(C), pages 615-626.
    3. Hommel, Ulrich, 2003. "Financial versus operative hedging of currency risk," Global Finance Journal, Elsevier, vol. 14(1), pages 1-18, May.
    4. Andersen, Torben Juul, 2012. "Multinational risk and performance outcomes: Effects of knowledge intensity and industry context," International Business Review, Elsevier, pages 239-252.
    5. Choi, Jongmoo Jay & Kim, Yong-Cheol, 2003. "The Asian exposure of U.S. firms: Operational and risk management strategies," Pacific-Basin Finance Journal, Elsevier, pages 121-138.
    6. Trappey, Charles V. & Shih, Tsui-Yii & Trappey, Amy J.C., 2007. "Modeling international investment decisions for financial holding companies," European Journal of Operational Research, Elsevier, vol. 180(2), pages 800-814, July.
    7. Choi, Jongmoo Jay & Jeon, Bang Nam, 2007. "Financial factors in foreign direct investments: A dynamic analysis of international data," Research in International Business and Finance, Elsevier, pages 1-18.
    8. Choi, Jongmoo Jay & Jiang, Cao, 2009. "Does multinationality matter? Implications of operational hedging for the exchange risk exposure," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1973-1982, November.

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