Firm Productivity and the Foreign‐Market Entry Decision

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe 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. JEL-Classification: F12, F15.

Determinants of Cross-Border Mergers and Acquisitions: A Comprehensive Review and Future Direction

“…A few studies on cross-border acquisitions in different institutional settings have analyzed the impact of firm-specific characteristics and their affect on success of overseas negotiations (e.g., Forssbaeck & Oxelheim, 2008;Raff, Ryan, & Stähler, 2012;Zhu, Jog, & Otchere, 2011). First and foremost, Gonzalez, Vasconcellos, Kish, and Kramer (1997) found that firms acquiring US-based firms have better liquidity ratio, while targets have low price-to-earnings ratio.…”

“…In particular, Raff et al (2012) analyzed the direct international investments in 21 developed countries made by Japanese firms between 1985 and 2000. They indicated that firms with greater levels of productivity likely to chose FDI (greenfield) than export strategy (acquisition).…”

Financial frictions and foreign direct investment: Evidence from Japanese microdata

“…Since we have access to detailed firm-level information, we can control for a number of additional firm characteristics, such as total assets (excluding land), total factor productivity (TFP), previous investment experience, market value, and cash flow, all known to be associated with FDI (see, for instance, Raff et al, 2012). We can also control for whether a firm and its main bank are in the same keiretsu.…”

The scope of auctions in the presence of downstream interactions and information externalities

“…Our results would remain qualitatively the same, if the investor had to choose simultaneously between the acquisition of a local firm and greenfield investment. 8 Empirical evidence suggests that such decisions are indeed made simultaneously, especially given a long lead time that greenfield investments generally require; see, for example, Raff et al (2012).…”