The Choice of Market Entry Mode: Greenfield Investment, M&A and Joint Venture

Frank Stähler, Michael Ryan and Horst Raff

No 2007-19, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: Multinationals may enter a host market by different modes of foreign direct investment (FDI). This paper examines the choice of FDI mode, and shows that the profitability of greenfield investment influences this choice not only directly, but also indirectly since it determines the outside option of potential acquisition targets and joint venture partners. In particular, even if greenfield investment is a viable option, the multinational may prefer a joint venture to M&A, and M&A to greenfield investment, provided that M&A and joint venture both involve sufficiently low fixed costs. The reason is that the profitability of greenfield investment both reduces the acquisition price in the case of M&A, and gives local firms an incentive to agree to a joint venture.

Keywords: Foreign direct investment; multinational firms; merger and acquisition; joint venture; greenfield investment (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The choice of market entry mode: Greenfield investment, M&A and joint venture (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:5685

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