Patterns and strategies of Foreign Direct Investment: the case of Japanese firms

This paper is to study globalization motives and strategies of Japanese manufacturing industries by analyzing the causes and patterns of foreign direct investment (FDI) of Japanese manufacturing firms. We use regression analysis to determine internally driving-out factors and externally-inducing factors. Japanese FDI strategy has gone through three different stages; from natural resource-seeking investment in the 1950s and 1960s to market-expansion investment in the 1970s and 1980s and to a combination of cost-reducing (low-cost labor-seeking) investment and market-penetrating investment in the 1990s. Our findings show that Japanese FDI in Asia and other developing countries tends to be in labor-intensive sectors where Japanese firms are losing their comparative advantages at home. The main motive for FDI into these regions is low-cost resource seeking. On the other hand, Japanese FDI in the US and Europe tends to be knowledge-intensive sectors where Japanese firms attempt to internalize transaction and information costs by globalizing its production. The main motive for FDI into these regions is market-seeking.     

Uncertainty and Investment Dynamics

This paper shows that with (partial) irreversibility higher uncertainty reduces the responsiveness of investment to demand shocks. Uncertainty increases real option values making firms more cautious when investing or disinvesting. This is confirmed both numerically for a model with a rich mix of adjustment costs, time-varying uncertainty, and aggregation over investment decisions and time and also empirically for a panel of manufacturing firms. These "cautionary effects" of uncertainty are large—going from the lower quartile to the upper quartile of the uncertainty distribution typically halves the first year investment response to demand shocks. This implies the responsiveness of firms to any given policy stimulus may be much weaker in periods of high uncertainty, such as after the 1973 oil crisis and September 11, 2001.     

Dynamic R&D choice and the impact of the firm's financial strength

ABSTRACT

This article investigates how a firm's financial strength affects its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long-run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long-run benefit of investing in R&D equals 6.6% of firm value. It ranges from 11.6% for firms in a strong financial position to 2.3% for firms in a weaker financial position.     

Overseas Investment and Firm Exports

A firm can serve overseas customers by exporting or by producing in the foreign market. Thus, ceteris paribus , one might expect increases in overseas investment to displace exports. However, most empirical work has found a positive relation between the two variables. The authors use a panel dataset containing 25 years' of data on 932 Japanese manufacturing firms to investigate the effect direct investment abroad has on exports. For the full sample of firms, complementarity is found. The relationship, however, varies across firms. Those that are unlikely to ship intermediates to overseas production affiliates exhibit substitution.     

FOREIGN ENTRY INTO U.S. SERVICE INDUSTRY BY TAKEOVERS AND THE CREATION OF NEW FIRMS

We study the relation between foreign entry in U.S. service sector industries and the revealed comparative advantage of the investing country using U.S. Bureau of Economic Analysis firm‐level data on all foreign takeovers and new foreign‐owned firms from 1998 to 2008. We find foreign acquisitions in the service sector are in industries of U.S. comparative advantage while new foreign firms are in industries of investing country's comparative advantage. This suggests that foreign acquisitions in the service sector are not directly related to foreign investors' competitiveness in the industry of investment. In contrast foreign investors in new service sector firms come from countries with a competitive edge in the industries of investment. We also find that foreign investors of new service sector firms are from Organization for Economic Co‐operation and Development (OECD) countries with a comparative disadvantage in royalties and trademarks. (JEL F21, F23, G34)     

Balance Sheet Restructuring and Investment

Abstract
This article looks at the evolution of corporate balance sheets and investment over the past few years .
We find that many companies have significantly improved their balance sheets in this time. Leverage has been reduced, and this, coupled with lower nominal interest rates, has improved the interest cover and cash flows of the corporate sector. For many firms, the process of balance sheet repair has proceeded a long way so that the extent to which the financial position of firms will impinge on investment is much lower than it was a few years ago.
Looking further ahead, it appears that the rate of return to investing in capital is relatively high, at least when judged against the standards of earlier downturns. With the recovery picking up pace we should, therefore, see firms more inclined to expand their capital expenditure and less focused on financial restructuring.     

Intangible Investment and Market Valuation

This study derives performance‐ and expenditure‐based estimates of intangible capital and measures the extent to which intangible capital is captured by the equity market measures of firm value. Intangible capital is evaluated using occupational information available in the Finnish linked employer–employee data for the 1997–2011 period. The performance‐based organizational investment in value added is approximately 3 percent; R&D and ICT investment shares are lower, at 1.5 percent, and all are clustered in intangible‐intensive sectors that represent 40 percent of the private sector. Expenditure‐based organizational capital also exists in clusters other than that intensively investing in managerial and marketing effort, and performance‐based R&D capital is concentrated in the cluster with intensive R&D activity; both increase the market value of firms beyond the level that can be explained by standard economic analysis.     

Investment dynamics with common and private values

We study a dynamic investment game with two-dimensional signals, where each firm observes its continuously distributed idiosyncratic cost of investment and a discrete signal correlated with common investment returns. We demonstrate that the one-step property holds and provide an equilibrium existence/characterization result. “Reversals” are possible, where a large number of firms investing in a given round becomes bad news about investment returns. Welfare is compared to static and rigid-timing benchmarks, and computed for large economies.     

The impact of OFDI on the performance of Chinese firms along the ‘Belt and Road’

ABSTRACT

Using feasible generalized least squares (FGLS) and ordinary least square (OLS) estimations on a dataset of 1208 outward Foreign Direct Investment (OFDI) events by Chinese-listed firms from 2004 to 2015, this paper investigated the impact of OFDI on the performance of Chinese firms, from which it was found that Chinese firms that had invested in Belt and Road Initiative (BRI) countries were more productive than those that had invested in non-BRI countries. However, OFDI by both state-owned enterprises (SOE) and non-SOE were on average found to be negatively related to productivity and profitability, with state-owned enterprises (SOEs) having worse performance in terms of total factor productivity (TFP) than non-SOEs. A further subsample analysis found that Chinese firms that were investing in developing economies were performing better than those that had invested in developed ones; firms investing in sub-regions like Middle East and South Africa, East Asia and the Pacific, Latin America and the Caribbean experienced a positive post-OFDI TFP but investment in other regions had either insignificant or negatively significant coefficients, indicating that firms in general had poor post-OFDI performances. The findings in this paper are informative for developing going-global strategies for both firms and government authorities.     

ICT and resilience in times of crisis: evidence from cross-country micro moments data

ABSTRACT

ICT-intensive firms are often found to have a better performance than their non-ICT-intensive counterparts. Along with investing in ICT capital they have to adapt their production and business processes in order to reap the potentials implied by the use of ICT. Are these firms also more resilient in times of crisis? We study this question by exploiting a novel and unique data set from the Micro Moments Database. Covering 12 countries, 7 industries and the period from 2001 to 2010, the data allow us to distinguish between ICT-intensive and non-ICT-intensive firms within industries. We find evidence that indeed during the crisis in 2008 and 2009, ICT-intensive firms were hit less hard with respect to their productivity. This holds in particular for firms from service industries. Moreover, ICT-intensive firms were also more successful in introducing process innovations during that period which could explain their better productivity performance compared to non-ICT intensive firms.     

Another look at the Relationship between Telecommunications Investment and Economic Activity in the United States

Abstract

In a recent issue of this journal, Beil et al. (2005, hereafter, BFJ) examined the relationship between telecommunications investment and economic growth in the United States over the period 1947–1996. Based on results from Granger-Sims test, BFJ conclude that ‘… investment by telecommunications firms is caused by, but does not cause, economic activity, and the findings are robust across lag lengths’. However, using another version of the Granger causality test due to Toda & Yamamoto (1995) and the same data set transformed into natural logarithms, the evidence in this paper indicates a feedback where there was a bi-directional causality between telecommunications investment and economic growth. This seems to suggest that policies aimed at stimulating the US economy by accelerating investment in the telecommunications sector may be successful.     

论近十年日本对华直接投资

日本企业对华直接投资的历史由来已久,虽然日本对华投资金额、项目数时高时低,但在对华投资国别（地区）中一直处于重要地位。主要从日本对华投资现状、日本对华投资新特点及趋势以及日企在华投资中存在的问题等方面,清楚、客观地分析了近十年日本对华投资的情况,提出要以“平常心”客观看待日本对华投资的发展趋势以及其中存在的问题,从中国现状出发,提出相关对策,为更好地促进日本在华投资升级发挥作用。     

SAVINGS INCENTIVES AND INVESTMENT MANAGEMENT FEES: A STUDY OF THE 529 COLLEGE SAVINGS PLAN MARKET

This paper analyzes the 529 College Savings Plan market using a plan level panel data set covering the years 2002–2006. The results show evidence of limited market competition and a positive relationship between state tax benefits and 529 plan fees. A $100 increase in potential taxable income benefit from investing in a 529 plan is associated with a 3–6 basis point increase in investment management fees for direct‐sold 529 College Savings Plans. This suggests that government policies designed to make college more affordable could enable investment firms to charge excess fees. (JEL G11, H24, I22)     

Investment abroad and labour adjustment at home: evidence from UK multinational firms

Abstract. This paper provides new evidence on the effects of overseas FDI on the skill‐mix of multinational firms’ home‐country operations. The analysis exploits China's WTO accession to identify the impact of outward investment into a low‐wage economy and uses plant‐level data to investigate changes in industrial structure within firms driven by plant closures. As predicted by models of vertical FDI, the paper demonstrates that overseas investment in low‐wage economies is associated with asymmetric effects on workers in low‐ and high‐skill industries in the home economy and, in particular, with firms closing down plants in low‐skill industries. JEL classification: F2     

家族所有权调节下的CEO薪酬与研发投资

以2013—2018年期间379家中国A股技术密集型公司数据为样本,研究了家族所有权在研发投资和CEO薪酬关系中的调节作用。结果发现:与非家族企业相比,家族企业CEO薪酬与研发投资水平关联性较高;家族所有权比例较高的家族企业对CEO薪酬与研发投资的关系具有更强的正向调节能力;低风险与高风险的家族企业在研发投资上没有显著差异。因此,家族所有权在研发投资和CEO薪酬关系中具有调节的作用是基于信息优势和较长的投资期限,而并非风险规避。进一步研究发现:家族企业的研发投资比非家族企业具有更高的投资效率、并可转化为更高的企业价值和增长率。     

Strategic Delay in a Real Options Model of R&D Competition

This paper considers irreversible investment in competing research projects with uncertain returns under a winner-takes-all patent system. Uncertainty takes two distinct forms: the technological success of the project is probabilistic, while the economic value of the patent to be won evolves stochastically over time. According to the theory of real options uncertainty generates an option value of delay, but with two competing firms the fear of preemption would appear to undermine this approach. In non-cooperative equilibrium two patterns of investment emerge depending on parameter values. In a pre-emptive leader–follower equilibrium firms invest sequentially and option values are reduced by competition. A symmetric outcome may also occur, however, in which investment is more delayed than the single-firm counterpart. Comparing this with the optimal cooperative investment pattern, investment is found to be more delayed when firms act non-cooperatively as each holds back from investing in the fear of starting a patent race. Implications of the analysis for empirical and policy issues in R&D are considered.     

Inward Investment and Technical Progress in the United Kingdom Manufacturing Sector

This paper investigates the impact of direct investment by foreign‐owned companies on technical progress and hence labour productivity in the UK manufacturing sector. Using an industry‐level panel data set we find that foreign‐owned firms have a significant positive effect on the level of technical efficiency in domestic firms. There is evidence of significant intra‐industry and inter‐industry spillovers from inward investment. These findings remain robust even when other factors such as imports and domestic R&D expenditures are allowed for. Inward investment appears to be a much more important source of technical progress than foreign trade.     

Technological capabilities accumulation and internationalization strategies of Mexican biotech firms: a multi case study from agro-food & pharma industries

ABSTRACT

In this paper our aim is to analyze the relationship between technological capabilities accumulation of Mexican biotech firms and their different types of internationalization strategies. Because of the determining effect of firms’ capital investment level, we analyzed three groups of firms: start-ups, small and medium-sized firms (SMEs) and multinational firms (MNEs). We made use of a wide range of information: The First Survey of Biotechnology Development Firms in Mexico, the systematization of 20 case studies, interviews with key persons in the industry and public sources. We confirmed the two hypotheses outlined: (i) TCA process does not follow a linear path in Mexican biotech firms and (ii) firms with lower capital investment levels exhibit a lower level of TCA and less complex internationalization strategies; while firms with higher capital investment levels are associated with higher TCA levels and more complex internationalization strategies. Biotechnology requires high levels of capital investment and these to a large extent determine the development and technological capabilities accumulation. Therefore, we suggest that a capitalization program is much needed to foster Mexican biotech firms’ TCA processes and develop internationalization strategies.     

Strategic timing in R&D agreements

We study the endogenous formation of R&D agreements in a R&D/Cournot duopoly model with spillovers where also the timing of R&D investments is endogenous. This allows us to consider the incentives for firms to sign R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In this case, the stability of an agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When spillovers are sufficiently high, the coordination of R&D efforts becomes a profitable option, although firms may also have an incentive to sequence noncooperatively their investment over time. Finally, when spillovers are asymmetric and knowledge mainly leaks from the leader to the follower, investing as follower may become extremely profitable, making R&D agreements hard to sustain unless firms strategically delay their joint investment in R&D.     

The Effect of Corruption on Investment Growth: Evidence from Firms in Latin America,Sub‐Saharan Africa,and Transition Countries*

Most of the empirical studies that analyze the impact of corruption on investment have three common features: they employ country‐level data on investment, corruption is measured at the country level, and data for countries from several regions are pooled together. This paper uses firm‐level data on investment and measures corruption at the firm and country level, and allows the effect of corruption to vary by region. Our dependent variable is firms' investment growth and we employ six measures of corruption from four different sources—two firm‐level measures and four country‐level measures. We find that the effect of corruption on investments varies significantly across regions: corruption has a negative and significant effect on investment growth for firms in Transition countries but has no significant impact for firms in Latin America and Sub‐Saharan Africa. Furthermore, for Transition countries, corruption is the most important determinant of investment.