Equity Commitment under Uncertainty: A Hierarchical Model of Real Option Entry Mode Choices

Authors

Rossitza B. Wooster, Portland State UniversityFollow
Luisa Blanco, Pepperdine UniversityFollow
W. Charles Sawyer, Texas Christian UniversityFollow

Published In

International Business Review

Document Type

Pre-Print

Publication Date

2016

Subjects

Real options (Finance), Latin America -- Foreign economic relations -- United States

Abstract

We develop a real option hierarchical model of entry mode choice and test predictions using a sample of US companies in Latin America and the Caribbean between 1980 and 2005. Probit results indicate that the choice between a real option non-equity mode and equity commitment is influenced by previous acquisition experience, R&D and advertising intensities, and country risk. The choice of the more flexible real option JV mode over WOEs is positively related to greater firm size and market-to-book ratio in countries with better infrastructure. In contrast, greater marketing intensity and lower country risk encourage WOEs.

Description

This is a pre-print of an article which was subsequently published in the International Business Review. 25.1 (2016): 382-394. Copyright (2016) Elsevier

Version of record can be found at:

http://dx.doi.org/10.1016/j.ibusrev.2015.07.006

Persistent Identifier

http://archives.pdx.edu/ds/psu/17702

Citation Details

Wooster, Rossitza B.; Blanco, Luisa; and Sawyer, W. Charles, "Equity Commitment under Uncertainty: A Hierarchical Model of Real Option Entry Mode Choices" (2016). Economics Faculty Publications and Presentations. 46.
http://archives.pdx.edu/ds/psu/17702