Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223549
Authors: 
Chen, Cheng
Sun, Chang
Zhang, Hongyong
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8477
Abstract: 
We propose that multinational firms learn about their profitability in a particular market by observing their performance in nearby markets. We first develop a model of firm expectations formation with noisy signals from multiple markets and derive predictions on expectations formation and market entries. Using a dataset of Japanese multinational corporations that includes sales expectations of each affiliate, we provide evidence supporting the model’s predictions. We find that a positive signal about demand inferred from nearby markets raises the probability of entry into a new market, or raises the firm’s sales expectation in an existing (focal) market. The latter effect is stronger when (1) the firm is less experienced in the focal market (2) the signals from the focal market are noisier and (3) the firm is more experienced in markets where signals are extracted.
Subjects: 
multinational production
learning
expectations formation
information transmission
JEL: 
F10
F20
D83
Document Type: 
Working Paper

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