Foreign Direct Investment and Investment under Uncertainty

Rivoli, Pietra; Salorio, Eugene M.

doi:10.1057/palgrave.jibs.8490138

Cited by 215 publications

(152 citation statements)

References 45 publications

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“…The firm should use low-control ownership structures to keep managerial flexibility and should not commit to highly irreversible investments (Rivoli & Salorio, 1996). Before launching a full-scale investment in a new venture or industry, firms typically make some initial trial investments first in order to increase the possibility of success (Bowman & Hurry, 1993).…”

Section: Investment Strategy and Vc Performancementioning

confidence: 99%

The Performance of Foreign Venture Capital Firms in Emerging Economies: A Study of U.S. Firms in China

Wang

2016

IJBM

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Extant research on the international venture capital (VC) firms largely focuses on cross-country comparison; only a limited number of studies have examined the internationalization of VC firms and their strategies in host countries. This study approaches the research topic mainly from an institutional perspective, and intends to understand the performance of foreign VC firms in emerging economies, a topic that has rarely been examined in previous research. Using a sample of U.S. VC firms investing in China, this study finds that U.S. VC firms with more investment experience at home have weaker investment performance in China. The empirical results also show that U.S. VC firms investing in ventures with larger top management team, staging their investments, and syndicating with other U.S. VC firms are likely to achieve better performance in China. Contrary to what was hypothesized, syndicating with Chinese VC firms decreases U.S. VC firms' investment performance in China.Keywords: emerging economies, institutional perspective, liability of foreignness, venture capital IntroductionResearch examining the growth and development of the venture capital (VC) industry and VC firms in different countries have captured a great deal of attention (e.g. Batjargal, 2007;Black & Gilson, 1998;Bruton, Ahlstrom, & Puky, 2009;Zacharakis, McMullen, & Shepherd, 2007). However, extant research on the international VC industry mainly focuses on cross-country comparison (Wright, Pruthi, & Lockett, 2005). Researchers have not paid adequate attention to the internationalization of VC firms and their strategies in host countries, with the studies by Patzelt and colleagues (2009) and Li and colleagues (2014) as two recent exceptions. Given the significant amount of cross-border VC flows and the geographic diversity of VC investments (Wright et al., 2005), a better understanding of VC firms' strategies in host countries becomes increasingly important. Among the target markets for VC firms to expand internationally, emerging economies are particularly intriguing because they simultaneously offer the biggest attractions and challenges to VC firms. The rapid changes in those economies create abundant new business opportunities, which spur the need for VC (Karsai, Wright, & Filatotchev, 1997). Furthermore, in the process of transforming their environments and strengthening their competitiveness, the managerial expertise accompanied with foreign VC firms is highly valued. Accordingly, this study intends to fill this gap in the literature by examining U.S. VC firms' strategies in China, the largest emerging economy.This study mainly approaches the research topic from an institutional perspective (e.g., North, 1990), and intends to contribute to the understanding of VC firms' strategies and actions in emerging economies, a topic which has rarely been examined in previous research while foreign VC investment in emerging economies has become an increasingly important business phenomenon. Using an institutional approach, extant studies have n...

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Section: Investment Strategy and Vc Performancementioning

confidence: 99%

The Performance of Foreign Venture Capital Firms in Emerging Economies: A Study of U.S. Firms in China

Wang

2016

IJBM

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“…A study of equity shares in international joint ventures'' by Cuypers and Martin, examines the boundaries of real options logic as it applies to international joint ventures. The authors distinguish between endogenous and exogenous uncertainty, arguing that only exogenous uncertainty will lead to the ''wait and see'' option (Rivoli & Salorio, 1996) because firms can ''assess and act on'' sources of endogenous uncertainty (such as cultural distance) using strategies other than ownership-share selection. A particularly interesting and useful twist to this article is the use of null hypothesis testing by looking at the range of size effects rather than mean values, that is, looking for the range of possible size effects that are (not) supported by the data.…”

Section: Other Highlights Of Jibs 411mentioning

confidence: 99%

Letter from the Editor-in-Chief: The JIBS Decade Award: Integrating international acquisitions

Eden¹

2009

J Int Bus Stud

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“…However, because real assets are typically firm-specific, industry-specific, or subject to market imperfections, real assets are irreversible to various degrees (Dixit and Pindyck 1994;Rivoli and Salorio 1996). As irreversibility increases, exit value decreases and the option value of abandonment is reduced.…”

Section: Option To Wait-to-investmentioning

confidence: 99%

“…Studies have shown that capturing the economic value of real options also depends on firm-and industry-level contingencies (e.g., Tong and Reuer, 2006 1996;Kogut 1991;Reuer and Leiblein 2000), foreign entry and multinational operations (e.g. Allen and Pantzalis 1996;Campa 1994;Miller and Reuer 1998b;Rangan 1998;Rivoli and Salorio 1996), R&D/ patenting decisions (McGrath 1997;McGrath and Nerkar 2004), and corporate growth value (e.g. Tong et al Forthcoming).…”

Section: The Performance Implications Of Real Optionsmentioning

confidence: 99%

“…Investment opportunities as real options Dixit & Pindyck (1995) Option to wait-to-invest Folta & O'Brien (2004); Rivoli & Salorio (1996) Options to abandon and switch Chi & Nystrom (1995); Kogut (1983); Kogut & Kulatilaka (1994a); Miller & Reuer (1998a, b) Growth options Kogut (1983; Endogenous uncertainty and learning Bowman & Hurry (1993);McGrath (1997);Sanchez (1993) Extensions of real options theory of investment Exit decisions and hysteresis Bragger, Bragger, Hantula & Kirnan (1998) Choice of investment modes Chi & McGuire (1996); Folta (1998); Kogut (1991); Leiblein (2003); Leiblein & Miller (2003) Organization and governance …”

Section: Key Topics Themes Illustrative Strategy Studiesmentioning

confidence: 99%

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Real Options: Taking Stock and Looking Ahead

James

Madhavan

et al. 2007

Advances in Strategic Management

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We discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in theory and practice, and propose several areas for future research. Our review shows that real options theory has provided important insights into investment and exit decisions as well as into the choice of investment modes. In addition, extant research studies have contributed substantially to our understanding of whether and how organizations can benefit from real options. Future research that addresses difficulties in applications will further advance both real options theory and practice in strategic management. REAL OPTIONS: TAKING STOCK AND LOOKING AHEAD ABSTRACTWe discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in theory and practice, and propose several areas for future research. Our review shows that real options theory has provided substantial insights into investment and exit decisions as well as into the choice of investment modes. In addition, extant research studies have contributed significantly to our understanding of whether and how organizations can benefit from real options. Future research that addresses difficulties in applications will further advance both real options theory and practice in strategic management. We call for future generations of research to enhance the impact of real options as an emerging dominant conceptual lens in strategic management.

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Foreign Direct Investment and Investment under Uncertainty

Cited by 215 publications

References 45 publications

The Performance of Foreign Venture Capital Firms in Emerging Economies: A Study of U.S. Firms in China

The Performance of Foreign Venture Capital Firms in Emerging Economies: A Study of U.S. Firms in China

Letter from the Editor-in-Chief: The JIBS Decade Award: Integrating international acquisitions

Real Options: Taking Stock and Looking Ahead

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