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Christian-Albrechts-Universität zu Kiel

Institut für Volkswirtschaftslehre - Department of Economics
Economics Working Papers

Economics Working Papers: Abstract 2007-19


Nummer

2007-19

Autoren

Horst Raff, Michael Ryan, Frank Stähler

 

Titel

 

The Choice of Market Entry Mode: Greenfield Investment, M&A and Joint Venture
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.

Keywords: Foreign direct investment, multinational firms, merger and acquisition, joint venture, greenfield investment

JEL classification: F12, F23

 

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