What determines the profitability of foreign direct investment? A subsidiary-level analysis of Japanese multinationals

Mariko Sakakibara and Hideki Yamawaki
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Mariko Sakakibara: University of California, CA, USA, Postal: University of California, CA, USA
Hideki Yamawaki: Claremont Graduate University, CA, USA, Postal: Claremont Graduate University, CA, USA

Managerial and Decision Economics, 2008, vol. 29, issue 2-3, pages 277-292

Abstract: This article identifies key factors that determine the profitability of Japanese firms abroad by using panel-data regression models on new, large-scale, subsidiary-level data over the 1990-1996 period. The results show that the determinants of subsidiary profits differ across host regions, suggesting that the economic and institutional factors specific to host regions influence significantly the profit performances of overseas subsidiaries. While the size effect on the subsidiary profitability is present in all the regions, other effects, such as experience, local supplier networks, local sales and macroeconomic conditions affect the performance of subsidiaries in a different manner by region. Copyright © 2008 John Wiley & Sons, Ltd.

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