Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects

This paper uses a proportional hazard model to study foreign direct investment by Japanese manufacturers in Europe between 1970 and 1994. We divide each firm’s investment total into a sequence of individual investment decisions and analyze how firm-specific characteristics affect each decision. We find that total factor productivity is a significant determinant of a firm’s initial and subsequent investments. Parent-firm size does not have a significant influence on the initial decision to invest. Large firms simply have more investments than smaller firms. Other firm-specific characteristics, such as the R&D intensity, export share and keiretsu membership, also play a role in the investment process.foreign direct investment, productivity, hazard model, Japan, keiretsu

Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects

This paper uses a proportional hazard model to study foreign direct investment by Japanese manufacturers in Europe between 1970 and 1994. We divide each firm?s investment total into a sequence of individual investment decisions and analyze how firm-specific characteristics affect each decision. We find that total factor productivity is a significant determinant of a firm?s initial and subsequent investments. Parent-firm size does not have a significant influence on the initial decision to invest. Large firms simply have more investments than smaller firms. Other firm-specific characteristics, such as the R&D intensity, export share and keiretsu membership, also play a role in the investment process. --Foreign direct investment,productivity,hazard model,Japan,keiretsu

Whole versus Shared Ownership of Foreign Affiliates

This paper studies why multinational firms often share ownership of a foreign affiliate with a local partner even in the absence of government restrictions on ownership. We show that shared ownership may arise, if (i) the partner owns assets that are potentially important for the investment project, and (ii) the value of these assets is private information. In this context shared ownership acts as a screening device. Our model predicts that the multinational?s ownership share is increasing in its productivity, with the most productive multinationals choosing not to rely on a foreign partner at all. This prediction is shown to be consistent with data on the ownership choices of Japanese multinationals. --Foreign direct investment,ownership,joint venture,productivity

Asset Ownership and Foreign-Market Entry

This paper examines the link between a firm?s owership of productive assets and its choice of foreign-market entry strategy. We find that, controlling for industry- and country-specific characteristics, the most productive firms (i.e., those owning the most assets) will enter through greenfield investment, less productive ones will choose M&A, and the least productive ones will export. In addition, the most productive firms are shown to prefer whole ownership to a joint venture. These predictions are confirmed in an econometric analysis of Japanese firm-level data. --Foreign direct investment,merger and acquisition,joint venture,greenfield investment,firm heterogeneity,productivity

Firm Productivity and the Foreign-Market Entry Decision

We use Japanese firm-level data to examine how a firm?s productivity affects its choice of foreign-market entry strategy. We study a sequence of decisions, starting with the choice between exporting and foreign direct investment (FDI). In the case of FDI, the firm faces two options: greenfield investment or merger and acquisition (M&A). If it selects greenfield investment, it has two ownership choices: whole ownership or a joint venture. Controlling for industry- and country-specific characteristics, we find that the more productive a firm is, the more likely it is to choose FDI rather than exporting, greenfield investment rather than M&A, and whole ownership rather than a joint venture. We also find that the assumed sequence of decisions fits the data better than alternative specifications. --Foreign direct investment,merger and acquisition,joint venture,greenfield investment,firm heterogeneity,productivity

Children in need of medical innovation

Children are therapeutic orphans and an underprivileged group in innovations derived from drug therapy. As the innovation process of pharmaceuticals is a long, risky and very costly business, economists typically emphasise lack of profit incentives and small market size as the most important obstacles to child-related innovative activity. Moreover, as new drugs need to be tested in medical trials, there are ethical concerns leading to a climate of reluctance towards medical trials on persons who are not able to give their "informed consent". Particularly in Germany, due to various reasons, a rather restrictive legislation is to be assumed, characterized by the idea of putting the protection of the individual human being before a more utilitarian view. Thus, economic incentives, legal restrictions and ethical concerns seem to be responsible for the lack of innovative activity targeted at drugs for children, though social cost-benefit considerations (i.e. welfare analysis) would most probably predict a high gain from the introduction of critical innovations. Grounded on a highly interdisciplinary view based on medical, pharmaceutical, psychopharmaceutical, psychotherapeutic and economic research as well as on ethical restrictions, this survey aims at analysing channels of influence that might be helpful both in the analysis of the innovation process of drugs for children, and in improving the uncertain situation of pediatric therapy.

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

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. --Foreign direct investment,multinational firms,merger and acquisition,joint venture,greenfield investment