The role of endogenous and exogenous risk in FDI entry choices |
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| Affiliation: | 1. Centre for International Business, University of Leeds, LS2 9JT, UK;2. Department of Management and Marketing, University of Melbourne, Parkville, 3010, Australia;1. Faculty of Business Administration, University of Macau, Avenida Padre Tomás Pereira, Taipa, Macau;2. School of Marketing & International Business, Victoria University of Wellington, 23 Lambton Quay, Pipitea Campus, PO Box 600, Wellington 6140, New Zealand;1. Essex Business School, University of Essex, Southend-on-Sea, SS0 0DH, United Kingdom;2. Leeds University Business School, University of Leeds, LS2 9JT, United Kingdom;3. Kent Business School, University of Kent, Canterbury, CT2 7FS, United Kingdom;1. Gordon Institute of Business Science, University of Pretoria, 25 Fricker Road, Illovo, Johannesburg, 2146, South Africa;2. University of Sussex, Jubilee Building, Falmer, Brighton, BN1 9RH, UK;3. Graduate School of Business, University of Cape Town, 8 Portswood Road, V&A Waterfront, Cape Town, 8002, South Africa;1. Kedge Business School, France;2. Rey Juan Carlos University, Spain;3. WU Vienna, Austria;1. Department of Strategy and Innovation, Copenhagen Business School, Kilevej 14, DK-2000, Frederiksberg, Denmark |
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| Abstract: | FDI research has presented consistent evidence that firm experience moderates the effect of risk on entry in a new foreign market. This conclusion is contested by recent research. By revisiting the conceptualisation of risk by economists and behaviourists, we show that the proposed learning mechanism only applies to endogenous risk, not exogenous risk. As assessing endogenous risk involves self-evaluation of risk-reducing capability, it is posited that firms have differential tendencies to take such risks even when experience and ownership are accounted for. We find both observed and unobserved variations in firms’ responses to endogenous risk, as opposed to exogenous risk. |
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| Keywords: | Location choice Experience Political risk FDI Behavioural theory |
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