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Investor Response to Environmental Risk in Foreign Direct Investment

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Abstract

  • The theory of internalization suggests that proprietary assets—usually in the form of advertising and/or marketing capabilities—are the key to understanding a firm’s ability to create value in foreign markets. We show that the capacity of a multinational corporation (MNC) to create value in a foreign direct investment (FDI) can also result from the use of an alternative proprietary asset; that is, the skills and management expertise that are acquired through the accumulation of various forms of foreign experience.

  • The value creation comes from the extension of an MNC’s experience-based capabilities to the host country to mitigate country-level risks. This experience can moderate the negative influence of environmental risk to create value for a firm and its investors.

  • In our sample of 305 FDIs, we find that Japanese MNCs that had direct or indirect experience in a host country showed greater abnormal returns in a FDI, particularly where environmental risk was high.

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Notes

  1. We employed a variety of robustness checks to ensure that our statistical findings are reliable. To conserve space, not all robustness checks are described in this paper but can be obtained from the authors upon request.

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Authors and Affiliations

  1. Queen’s School of Business, Queen’s University, Kingston, Canada

    Anthony Goerzen

  2. Richard Ivey School of Business, University of Western Ontario, London, Canada

    Stephen Sapp

  3. Department of Strategy & Policy, NUS Business School, National University of Singapore, Singapore, Republic of Singapore

    Andrew Delios

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  1. Anthony Goerzen
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Correspondence to Anthony Goerzen.

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Goerzen, A., Sapp, S. & Delios, A. Investor Response to Environmental Risk in Foreign Direct Investment. Manag Int Rev 50, 683–708 (2010). https://doi.org/10.1007/s11575-010-0058-8

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