Factors affecting perceptions of the choice between acquisition and greenfield entry: The case of Western FDI in an emerging market

Abstract

Abstract and Key Results • This study provides a comprehensive account of foreign establishment mode strategies of firms investing in Turkey. The results of the logistic regression modeling provide support to the hypothesized relationships that take into account the impact of host country specific motives of MNEs on their choice between acquisitions and greenfield investments. • The host country motives quality of inputs and market potential have significant negative coefficients, indicating that an MNE will favor the acquisition mode over a greenfield mode as the relative importance of both motives increases. • The host country motive of investment risk has a significant positive coefficient, which increases the likelihood of the venture being a greenfield investment. • Our results also show that the main investing firm specific and subsidiary level determinants of FDI modal choice identified in prior research also influence the establishment mode choice of Western MNEs when investing in Turkey. Parent diversity, previous commercial association, ownership pattern and resource-intensiveness of the target industry have the expected impact on the foreign investor’s choice between a greenfield investment and an acquisition. • No support is found, however, for the impact of cultural distance and foreign parent size on establishment mode choice. Similarly, the control variables of home region of the investing firm, timing of entry and industrial sector of investment do not affect modal choice.