Firm Productivity and the Foreign-Market Entry Decision

Research, Preprint OPEN
Raff, Horst ; Ryan, Michael ; Stähler, Frank (2008)
  • Publisher: Kiel: Kiel University, Department of Economics
  • Subject: greenfield investment | Unternehmen | Japan | F12 | Direktinvestition | Internationale Markteintrittsstrategie | firm heterogeneity | F15 | Foreign direct investment | Produktivität | productivity | joint venture | Foreign direct investment,merger and acquisition,joint venture,greenfield investment,firm heterogeneity,productivity | merger and acquisition
    • jel: jel:F12 | jel:F15
      ddc: ddc:330

We use Japanese firm-level data to examine how a firm?s productivity affects its choice of foreign-market entry strategy. We study a sequence of decisions, starting with the choice between exporting and foreign direct investment (FDI). In the case of FDI, the firm faces two options: greenfield investment or merger and acquisition (M&A). If it selects greenfield investment, it has two ownership choices: whole ownership or a joint venture. Controlling for industry- and country-specific characteristics, we find that the more productive a firm is, the more likely it is to choose FDI rather than exporting, greenfield investment rather than M&A, and whole ownership rather than a joint venture. We also find that the assumed sequence of decisions fits the data better than alternative specifications.
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