Conclusion

Colin White and Miao Fan

Chapter 13 in Risk and Foreign Direct Investment, 2006, pp 236-239 from Palgrave Macmillan

Abstract: Abstract A theory is needed which justifies a clear decision rule for international investments and validates the method of measuring the variables which are inputs into a relevant valuation. There is also a need for a simple, transparent and easily comprehensible formula for making the necessary investment decisions. Neither exists: the more elegant the theory, the more unrealistic it is and the less easy it is to use; the simpler the formula and the easier it is to use, the less justified is its use by theory. There are major weaknesses with both the CAPM and real options models and serious problems with a naïve use of the present value formula. Inevitably, the prescription in this book is therefore a compromise. There is a decision rule but it is not as simple as might be hoped, which inevitably means that enterprises will continue to use as a back-up the target payback period method.

Keywords: Foreign Direct Investment; Decision Rule; Host Country; Investment Project; Risk Mitigation (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1057/9780230624832_13

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