The choice and timing of foreign direct investment under uncertainty |
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Authors: | Enrico Pennings Leo Sleuwaegen |
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Institution: | a IGIER-Bocconi University, Via Salasco 3/5, 20136, Milano, Italy;b VLGMS, Catholic University Leuven, Belgium;c Erasmus University Rotterdam, The Netherlands |
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Abstract: | This paper sheds new light on why timing and entry mode should be considered simultaneously in the international investment literature. We derive the profit levels at which it is optimal to switch from exporting to setting up a wholly owned subsidiary, creating a joint venture, or licensing production to a local firm. The preferred entry mode depends on uncertainty about future profits, tax differentials between the home and the foreign country, the cost advantages of local firms, institutional requirements, and the degree of cooperation between partners in a joint venture. |
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Keywords: | Finance Real options Multinational enterprises Joint ventures Market entry |
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