Investor Response to Environmental Risk in Foreign Direct Investment

Anthony Goerzen (), Stephen Sapp and Andrew Delios
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Anthony Goerzen: Queen’s University
Stephen Sapp: Richard Ivey School of Business, University of Western Ontario
Andrew Delios: NUS Business School, National University of Singapore

Management International Review, 2010, vol. 50, issue 6, No 2, 683-708

Abstract: Abstract The theory of internalization suggests that proprietary assets—usually in the form of advertising and/or marketing capabilities—are the key to understanding a firm’s ability to create value in foreign markets. We show that the capacity of a multinational corporation (MNC) to create value in a foreign direct investment (FDI) can also result from the use of an alternative proprietary asset; that is, the skills and management expertise that are acquired through the accumulation of various forms of foreign experience. The value creation comes from the extension of an MNC’s experience-based capabilities to the host country to mitigate country-level risks. This experience can moderate the negative influence of environmental risk to create value for a firm and its investors. In our sample of 305 FDIs, we find that Japanese MNCs that had direct or indirect experience in a host country showed greater abnormal returns in a FDI, particularly where environmental risk was high.

Keywords: Multinational corporation; Foreign direct investment; Location; Country risk; Firm experience; Joint ventures (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11575-010-0058-8

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