Foreign Direct Investment: The Case of Eastern Europe

The purpose of this study is to examine the market’s reaction to the announcement foreign direct investment in Eastern Europe for firms from various Western European countries and from Japan during the first merge wave after the Berlin Wall removal. The results indicated that there is either an insignificant negative reaction, or no consistent significant reaction to the announcements of joint ventures or direct foreign investment. U.S.S.R. seems to be the most risky of the target countries. The present conditions of uncertainty and high political economic risk appear to offset any favourable effects. The results may be period specific since there was an unusually high level of uncertainty surrounding the removal of the Wall.