The Effects of Political Risk on Different Entry Modes of Foreign Direct Investment

Hoon Lee, Glen Biglaiser, Joseph L. Staats

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

Although numerous studies document the effect of political institutions on foreign direct investment (FDI), few works in the political economy literature have investigated the link between political institutions and the mode of entry chosen by investors, be it mergers and acquisitions, joint ventures, or greenfield investments. Using panel data for 111 developing countries covering 1980–2006, we find that countries with political institutions that uphold good governance tend to attract higher levels of mergers and acquisitions, as opposed to joint ventures and greenfield investments, because such institutions help to mitigate the special risks faced by merger and acquisition investors. Our findings provide a nuance for understanding the different effects of political institutions based on the particular mode of entry.

Original languageEnglish
Pages (from-to)683-710
Number of pages28
JournalInternational Interactions
Volume40
Issue number5
DOIs
StatePublished - Oct 20 2014

Keywords

  • foreign direct investment
  • greenfield investments
  • joint ventures
  • political risk

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