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When more can be less: the perceived value of additional FDI in the same host country

Thomas Hutzschenreuter (WHU – Otto Beisheim School of Management, Vallendar, Germany)
Ingo Kleindienst (WHU – Otto Beisheim School of Management, Vallendar, Germany)
Boris von Bieberstein (WHU – Otto Beisheim School of Management, Vallendar, Germany)

Multinational Business Review

ISSN: 1525-383X

Article publication date: 11 November 2011

Abstract

Purpose

The aim of this paper is to explore whether and how the depth of a company's operations in a given host country influences how shareholders value further investments in that country. Here, depth means the extent of a company's presence, that is, a company's accumulated foreign direct investment (FDI) in a given country prior to the focal investment.

Design/methodology/approach

This paper develops a theoretical framework postulating that the value of an additional FDI in a given host country decreases to the extent to which it is redundant to a company's accumulated FDI in that country prior to the focal investment. Hypotheses are advanced and tested using a sample that encompasses the FDIs of 91 German MNEs over a 20‐year period from 1985 to 2004.

Findings

The empirical analysis shows that there is a negative relationship between depth of operations in a host country prior to the focal investment and the value that shareholders put on that investment. It is also found that the negative relationship is moderated by characteristics of the focal investment, as well as by characteristics of the country in which the additional investment is made.

Research limitations/implications

The theoretical framework developed in this study provides a starting‐point for further research on the valuation effect of individual FDIs. This study focuses on cross‐border acquisitions mainly because the value effect of such FDI can be calculated using an event study approach. However, it is believed that testing this study's theoretical framework using other forms of FDI would yield interesting results.

Originality/value

This is among the few studies that investigate how a company's path of FDI in a given host country affects the value of additional FDI in that country.

Keywords

Citation

Hutzschenreuter, T., Kleindienst, I. and von Bieberstein, B. (2011), "When more can be less: the perceived value of additional FDI in the same host country", Multinational Business Review, Vol. 19 No. 4, pp. 332-356. https://doi.org/10.1108/15253831111190171

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited