Strategic and Financial Determinants of Foreign Direct Investments

Abstract

Conventional foreign direct investment (FDI) theories regard FDIs as strategic moves based on operational or industrial organization considerations. We demonstrate that financial factors are also important in corporate FDI decisions. The financial factors concern internal capital market strength and corporate governance and include exchange rate changes, internal and external financing cost, risk diversification, and agency costs. There is variability in the significance of financial variables depending on industries and destinations. The integrated model with both strategic and financial factors is superior to either component model in explaining FDIs. However, financial factors are no less important in explaining the prevailing FDI phenomena than strategic or operational variables.

Citation

Choi, J.J. and Tsai, E.C. (2006), "Strategic and Financial Determinants of Foreign Direct Investments", Choi, J.J. and Click, R.W. (Ed.) Value Creation in Multinational Enterprise (International Finance Review, Vol. 7), Emerald Group Publishing Limited, Leeds, pp. 19-60. https://doi.org/10.1016/S1569-3767(06)07002-6