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When more can be less: the perceived value of additional FDI in the same host country

When more can be less: the perceived value of additional FDI in the same host country Purpose – The aim of this paper is to explore whether and how the depth of a company's operations in a given host country influences how shareholders value further investments in that country. Here, depth means the extent of a company's presence, that is, a company's accumulated foreign direct investment (FDI) in a given country prior to the focal investment. Design/methodology/approach – This paper develops a theoretical framework postulating that the value of an additional FDI in a given host country decreases to the extent to which it is redundant to a company's accumulated FDI in that country prior to the focal investment. Hypotheses are advanced and tested using a sample that encompasses the FDIs of 91 German MNEs over a 20‐year period from 1985 to 2004. Findings – The empirical analysis shows that there is a negative relationship between depth of operations in a host country prior to the focal investment and the value that shareholders put on that investment. It is also found that the negative relationship is moderated by characteristics of the focal investment, as well as by characteristics of the country in which the additional investment is made. Research limitations/implications – The theoretical framework developed in this study provides a starting‐point for further research on the valuation effect of individual FDIs. This study focuses on cross‐border acquisitions mainly because the value effect of such FDI can be calculated using an event study approach. However, it is believed that testing this study's theoretical framework using other forms of FDI would yield interesting results. Originality/value – This is among the few studies that investigate how a company's path of FDI in a given host country affects the value of additional FDI in that country. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Multinational Business Review Emerald Publishing

When more can be less: the perceived value of additional FDI in the same host country

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References (119)

Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1525-383X
DOI
10.1108/15253831111190171
Publisher site
See Article on Publisher Site

Abstract

Purpose – The aim of this paper is to explore whether and how the depth of a company's operations in a given host country influences how shareholders value further investments in that country. Here, depth means the extent of a company's presence, that is, a company's accumulated foreign direct investment (FDI) in a given country prior to the focal investment. Design/methodology/approach – This paper develops a theoretical framework postulating that the value of an additional FDI in a given host country decreases to the extent to which it is redundant to a company's accumulated FDI in that country prior to the focal investment. Hypotheses are advanced and tested using a sample that encompasses the FDIs of 91 German MNEs over a 20‐year period from 1985 to 2004. Findings – The empirical analysis shows that there is a negative relationship between depth of operations in a host country prior to the focal investment and the value that shareholders put on that investment. It is also found that the negative relationship is moderated by characteristics of the focal investment, as well as by characteristics of the country in which the additional investment is made. Research limitations/implications – The theoretical framework developed in this study provides a starting‐point for further research on the valuation effect of individual FDIs. This study focuses on cross‐border acquisitions mainly because the value effect of such FDI can be calculated using an event study approach. However, it is believed that testing this study's theoretical framework using other forms of FDI would yield interesting results. Originality/value – This is among the few studies that investigate how a company's path of FDI in a given host country affects the value of additional FDI in that country.

Journal

Multinational Business Review – Emerald Publishing

Published: Nov 11, 2011

Keywords: International investments; International business; Shareholder value analysis; Diversification; International strategy; FDI; Value effect; Sequential perspective

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