Acquired versus Non-Acquired Subsidiaries - Which Entry Mode do Parent Firms Prefer

Esther Kalkbrenner (esther.kalkbrenner@univie.ac.at)
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Esther Kalkbrenner: University of Vienna / Department of Ecnomics, http://homepage.univie.ac.at/esther.kalkbrenner/
Authors registered in the RePEc Author Service: Esther Segalla

No 2010-22, NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria

Abstract: Despite the economic importance of international foreign direct investment (FDI) flows, investment decisions of multinational firms are not well understood. A multinational firm can establish a subsidiary in a foreign country through greenfield investment or through acquiring an existing firm in the target country. The goal of this paper is to shed some light on the determinants of foreign market entry modes. In particular to analyze the systematic variation in the mode choice of FDI, namely acquisition versus non-acquisition (greenfield) investments. We propose a transparent and general applicable method to construct a data base. This database includes information about parent firms and their majority owned affiliates in foreign countries. A particular feature is the construction of a variable which allows to differentiate the establishment mode of parent firms into foreign markets. For this purpose two databases from the Bureau van Dijk are interlinked: Osiris and Zephyr. We provide evidence that firm heterogeneity is important for U.S. multinational firms in determining their entry mode choice. However, this is not a distinguishing feature for European multinational firms. For both sets of parent firms the host country characteristics play an important role in deciding on the entry mode. Higher institutional quality increases the likelihood of acquisitions versus greenfield investments.

Keywords: Acquisition, Greenfield, Subsidiaries, Mode Choice, FDI, Institutions (search for similar items in EconPapers)
JEL-codes: F23 L23 P5 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010-12
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:jku:nrnwps:2010_22

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