Multinational investment and the value of growth options: Alignment of incremental strategy to environmental uncertainty

Rene Belderbos, Tony W Tong and Shubin Wu

No 628604, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: One of the motivations for multinational firms’ investment in foreign affiliates in uncertain environments is the future growth opportunities the investment may bring. We argue that whether firms derive growth option value from their multinational investment is determined by the interaction between market uncertainty and firms’ incremental investment strategy. We show evidence that multinational investment creates growth option value for firms operating affiliates in host countries with high market uncertainty. In such uncertain environments, however, incremental investment strategies – limiting the equity stake or the size of investment in affiliates, across all countries or within each country – prove critical to the value of growth options. Creating growth option value therefore requires an alignment of firms’ incremental investment strategy to the uncertain country environments they confront.

Pages: 41
Date: 2018-10-23
Note: paper number MSI_1805
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Forthcoming in FEB Research Report MSI_1805

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Journal Article: Multinational investment and the value of growth options: Alignment of incremental strategy to environmental uncertainty (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:msiper:628604

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