Performance feedback and location choice of foreign direct investment

Shufeng Xiao and Xiaocong Tian

International Business Review, 2023, vol. 32, issue 4

Abstract: Integrating the behavioral theory of the firm and the OLI paradigm, this paper studies how performance feedback affects the location choice of emerging market firms between developed countries (DCs) and less developed countries (LDCs) during the process of internationalization. Using the sample of 1,306 Chinese public listed firms which established new foreign subsidiaries between 2008 and 2019, we find that the further a firm’s performance is below aspiration, the more likely it will invest in LDCs than DCs, whereas the further a firm’s performance is above aspiration, the more likely it will invest in DCs than LDCs. In addition, technology-based capability and labor intensive production capability have moderating effects on the relationship between performance feedback and location choice between DCs and LDCs. This paper complements and extends the OLI paradigm by injecting dynamic and non-economic factors to explain OFDI location choice.

Keywords: Location choice; Performance feedback; Developed countries; Less developed countries; Behavioral theory of the firm; OLI (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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DOI: 10.1016/j.ibusrev.2023.102104

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