Multinational real options and hysteresis

An examination of FDI in manufacturing and hard-and soft-service industries

H. Young Baek, David Cho, Dong-Kyoon Kim

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Growth option benefits in foreign direct investment may be limited by a low probability of exercise due to less demand or corporate focus change. Acquisitions driven by management self-interest may even decrease shareholder wealth. Flexibility option benefits are negligible among soft-service multinational enterprises (MNEs), but are better realized by hard-service MNEs, which are operationally less encumbered by hysteresis than manufacturing MNEs. For 235 foreign acquisitions announced by U.S. firms during 1999 and 2000, flexibility options have a positive effect on shareholder value especially for the hard-service acquirers, which are less subject to the muting effects of hysteresis.

Original languageEnglish
Pages (from-to)7-19
Number of pages13
JournalEmerging Markets Finance and Trade
Volume48
Issue numberSUPPL. 1
DOIs
StatePublished - 1 Jan 2012

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Multinationals
Service industries
Hysteresis
Real options
Multinational enterprises
Manufacturing
Lower probabilities
Shareholder value
Growth options
Foreign acquisitions
Foreign direct investment
Exercise
Shareholder wealth

Keywords

  • flexibility
  • foreign direct investment (FDI)
  • growth
  • hysteresis
  • multinational enterprise (MNE)
  • platform
  • real option
  • switching

Cite this

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Multinational real options and hysteresis : An examination of FDI in manufacturing and hard-and soft-service industries. / Baek, H. Young; Cho, David; Kim, Dong-Kyoon.

In: Emerging Markets Finance and Trade, Vol. 48, No. SUPPL. 1, 01.01.2012, p. 7-19.

Research output: Contribution to journalArticleResearchpeer-review

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