Entry Mode Choice and Performance: Evidence from Taiwanese FDI in China

Ming-Yuan Chen

Emerging Markets Finance and Trade, 2012, vol. 48, issue 3, 31-51

Abstract: This paper examines entry mode choices between wholly owned subsidiaries (WOSs) and joint ventures (JVs) and the impact on performance for Taiwanese foreign direct investment in China. Taiwan and China share common cultural traits, so Taiwanese investors inherently prefer WOSs because these investors are acquainted with local conditions in China. This paper shows that even if WOSs are a natural choice, transaction cost theory is applicable in explaining the adoption of JVs by Taiwanese firms when investing in China. Firms that choose WOSs generally have higher sales growth and superior profitability. However, the smaller the subsidiary and the less experienced the firm, the more likely that JVs will have better performance.

Keywords: bivariate probit model; entry mode choice; performance; transaction cost theory; treatment effects model (search for similar items in EconPapers)
Date: 2012
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