Abstract
This research uses an unbalanced date set for a sample of U.S. multinational manufacturing firms to evaluate the effect of the relationships between firm strategic factors (i.e. firm size, marketing intensity and capital intensity) and foreign direct investment (FDI) on firm’s financial performance. Specifically, this study evaluates the direct effect of FDI activity on firm performance, the indirect effect of FDI activity on firm performance, and the moderating effect of FDI activity on the relationships between strategic factors and firm performance. The results suggest that FDI activity plays an important role on the financial strength of U.S. multinational manufacturing firms, and reveal interesting interactions between FDI and some firm strategic factors and their positive effect on financial performance.
Highlights
Over the past decades there has been a very important increase in international capital flows and a trend toward a more integrated world economy
The impressive growth in foreign direct investment (FDI) activity has been a reflection of this new global business environment
This study suggests that there is evidence that the positive effects of marketing intensity and capital intensity on return on assets (ROA) and of marketing intensity on return on sales (ROS) are reinforced by FDI
Summary
Over the past decades there has been a very important increase in international capital flows and a trend toward a more integrated world economy. Firms producing goods or offering services with international brand recognition may use FDI to better capture foreign markets. This may be done via establishment of production operations in those markets, joint ventures with domestic firms, or through franchising. The important increase in cross-border investment activity by U.S manufactures coupled with inconclusive empirical evidence on the relationship between FDI, firm’s strategic factors and economic performance warrants additional investigation. This study contributes to the international business literature, by investigating the direct and indirect relationships between FDI activity of U.S manufactures and firm strategic factors for different performance measures.
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