ABSTRACT. The literature on foreign direct investment
(FDI) has analysed the entry mode choice by multinational
enterprises (MNEs) from several theoretical viewpoints.
Nevertheless, previous studies have mainly focused on the
behaviour of large and established MNEs while little attention
has been given to small- and medium-sized firms.
The paper aims at providing further empirical evidence on
the role of firm size and international experience in influencing
the ownership structure of FDI. The main hypothesis is that
smaller firms, characterised by financial and managerial con-
straints, as well as firms lacking experience in managing
foreign operations, suffer from a condition of adverse asym-
metry in information costs, compared to their competitors.
Therefore, they are forced to act prudently, minimising risk
and thus preferring a less control arrangement of foreign sub-
A binomial logistic model is developed with reference to
manufacturing foreign direct investments undertaken by Italian
firms in the period 1986–1993.
One of the most important decisions faced by a
company intending to undertake a foreign direct
investment (FDI) concerns the ownership structure
of the foreign subsidiary. A number of alternatives
are possible, ranging from a minority stake to the
ownership of 100% of the foreign subsidiary’s
stakeholdings. In recent years the economic liter-
ature has given increasing attention to the factors
influencing that choice and several interpretations
emanating from different theoretical perspectives
have been put forward.
literature has mainly focused on the behaviour of
large and established multinational enterprises
while little attention has been paid to the
international activity of small- and medium-sized
firms. The rich international experience and the
availability of abundant financial, managerial and
technological resources enjoyed by large MNEs
make the empirical results of these studies not
immediately transferable to their smaller and less
experienced competitors. Thus, empirical knowl-
edge on the behaviour of small- and medium-sized
MNEs is still far beyond to be satisfactory.
This paper aims at providing empirical evi-
dence on the role of firm size and international
experience in influencing the ownership structure
of foreign direct investments. It is argued that the
entry mode choice by foreign investors is made
under conditions of uncertainty. Lack of interna-
tional experience and financial and managerial
constraints increase firms’ need of collecting and
processing information as well as the related costs.
Therefore, conditions of adverse asymmetry in
information costs force smaller and less experi-
enced firms to act prudently and thus to adopt
internationalisation strategies based on risk min-
imisation in which joint ventures are preferred to
A binomial logistic model is developed with
reference to a sample of 947 FDI in manufacturing
undertaken by 386 Italian firms in the period
1986–1993. The Italian context offers an ideal
setting for the purpose of the present study. On the
The Influence of Firm’s Size and
International Experience on the
Ownership Structure of Italian
FDI in Manufacturing
Small Business Economics 11: 43–56, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
Final version accepted on February 13, 1997
University of Pavia
Politecnico di Milano