HCBE Faculty Articles

Title

Multinational Real Options and Hysteresis: An Examination of FDI in Manufacturing and Hard- and Soft-Service Industries

Document Type

Article

Date

2012

Publication Title

Emerging Markets Finance and Trade

ISSN or ISBN

1540-496X

Volume

48

Issue

sup 1

First Page

7

Last Page

19

Description

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.

DOI

10.2753/REE1540-496X4801S101

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