Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/22035 
Year of Publication: 
2007
Series/Report no.: 
Economics Working Paper No. 2007-19
Publisher: 
Kiel University, Department of Economics, Kiel
Abstract: 
Multinationals may enter a host market by different modes of foreign direct investment (FDI). This paper examines the choice of FDI mode, and shows that the profitability of greenfield investment influences this choice not only directly, but also indirectly since it determines the outside option of potential acquisition targets and joint venture partners. In particular, even if greenfield investment is a viable option, the multinational may prefer a joint venture to M&A, and M&A to greenfield investment, provided that M&A and joint venture both involve sufficiently low fixed costs. The reason is that the profitability of greenfield investment both reduces the acquisition price in the case of M&A, and gives local firms an incentive to agree to a joint venture.
Subjects: 
Foreign direct investment
multinational firms
merger and acquisition
joint venture
greenfield investment
JEL: 
F12
F23
Document Type: 
Working Paper

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