Is foreign investment for outperformers or underperformers? Evidence from Japanese machinery firms
Drawing on performance feedback theory, this study examines the relationship between corporate performance and subsequent foreign investment decisions. It is argued that a firm's performance relative to its aspiration levels influences its propensity to engage in foreign investment as well as its choice of investment location. We propose that an improvement in performance relative to aspiration levels of performance reduces the propensity for international investment and that the deterrent impact of country distance on foreign entry is contingent on relative performance. Consistent with the theory, an analysis of investments in foreign manufacturing facilities made by 206 Japanese machinery firms between 1986 and 2002 shows that foreign investment propensity is overall negatively related to prior firm performance relative to aspiration levels. The likelihood of foreign investment decreases when firm performance exceeds historical and social aspirations. The probability of foreign entry does not significantly increase as performance falls below aspirations, however is still greater than when performance exceeds aspirations. In addition, outperforming and underperforming firms were more likely to enter host countries with larger geographic and institutional distances from Japan, implying extended search efforts and/or greater risk-taking behavior.
|Keywords||FDI, Location Choice, Performance feedback|
|Conference||70th Annual Meeting of the Academy of Management - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010|
Jiang, G. F, & Holburn, G. (Guy). (2010). Is foreign investment for outperformers or underperformers? Evidence from Japanese machinery firms. In Academy of Management 2010 Annual Meeting - Dare to Care: Passion and Compassion in Management Practice and Research, AOM 2010.