Review of Industrial Organization 19: 199–209, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Entry through Acquisition: Determinants of
Multinational Firm Choices
Athens University of Economics and Business, 76 Patission Street, 10434 Athens, Greece
Abstract. This paper examines the factors that determine the decision of multinational ﬁrms to
enter a foreign market through acquisition. In addition to the traditional industry variables attracting
or discouraging entry through their effects on expected returns, the relative size of multinational
entry in Greece in 1987–96 is found to be affected by a new group of variables, shaping rational
proﬁt expectations and characterizing the target, the industry and the origin of the buyer. A better
understanding of the decision to enter a market through acquisition instead of greenﬁeld investment
and of its possible consequences is thus provided.
Key words: Acquisitions, entry, multinationals.
JEL Classiﬁcations: L11, L22, F23.
Entry in an established market may follow either of two modes: greenﬁeld or ac-
quisition. Firms make their decisions by trading off the risk of a greenﬁeld entry
versus the increased coordination costs which the acquired entity will present. In-
dependent entry increases market supply and takes time thus reducing proﬁtability
expectations. On the other hand such expectations may be boosted by the use of
new technology and management. Acquisition of an already existing market share
maintains supply and does not reduce prices. Subsequently, it does not attract hos-
tile reactions by incumbent ﬁrms but all rents may be dissipated in the effort for
Multinational ﬁrms (MNFs), when expanding abroad via direct investment,
face greater risks than local ﬁrms due to their lack of familiarity with the host
market. Thus, they often prefer the lower riskiness of acquisition once a going
concern is thought suitable for their purposes (Caves, 1996). A positive time trend
towards acquisitions has been noted in the literature (Caves and Mehra, 1986; Ze-
jan, 1990; Anderson and Svensson, 1994). Svensson (1998) reports that the share
The author acknowledges support from a TMR grant on Foreign Direct Investment and the
Multinational Corporation (FMRX-CT-98-0215).