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Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Companies

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  • Marie E Wicks Kelly

    (McKinsey and Company)

  • George C Philippatos

    (The University of Tennessee)

Abstract

A large sample of U.S.-based manufacturing multinational companies were surveyed regarding their investment valuation practices. It was found that: (a) Foreign Direct Manufacturing Investment (FDMI) is motivated primarily by profit rather than the recently proposed behavioral considerations; (b) the majority of companies practice project-by-project analysis of the simple accept/reject type, rather than the comparative project analysis advocated by financial analysts; (c) most of the companies utilized criteria for single investments, cash-flows, and cost of capital that were in general agreement with the analytical literature; (d) companies were concerned more with business risk than currency and political risks—moreover, all three types of risk were evaluated subjectively and accounted through adjustments in the required rates of return rather than the cash flows of the FDMI, as specified in financial research; (e) analysis of demographic and behavioral variables for possible relationships to FDMI evaluation practices yielded interesting but variable specific results. The questionnaires were mailed in May 1979 and the personal interviews were conducted during December 1979 and the first six months of 1980.© 1982 JIBS. Journal of International Business Studies (1982) 13, 19–42

Suggested Citation

  • Marie E Wicks Kelly & George C Philippatos, 1982. "Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Companies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(3), pages 19-42, September.
    • Handle: RePEc:pal:jintbs:v:13:y:1982:i:3:p:19-42
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    Citations

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    Cited by:

    1. Adrian Buckley & Peter Buckley & Pascal Langevin & Ka Lun Tse, 1996. "The financial analysis of foreign investment decisions by large UK-based companies," The European Journal of Finance, Taylor & Francis Journals, vol. 2(2), pages 181-206.
    2. Gregory Clare & Ira N. Gang, 2010. "Exchange Rate and Political Risks, Again," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(3), pages 46-58, May.
    3. Larimo, Jorma, 1995. "The foreign direct investment decision process: Case studies of different types of decision processes in finnish firms," Journal of Business Research, Elsevier, vol. 33(1), pages 25-55, May.
    4. Shao, Lawrence Peter, 1997. "Capital structure norms among foreign subsidiaries of U.S. multinational enterprises," Global Finance Journal, Elsevier, vol. 8(1), pages 145-157.
    5. Siziba, Simiso & Hall, John Henry, 2021. "The evolution of the application of capital budgeting techniques in enterprises," Global Finance Journal, Elsevier, vol. 47(C).
    6. Tuan, Chyau & Ng, Linda Fung-Yee, 1995. "Hong Kong's outward investment and regional economic integration with guandong: Process and implications," Journal of Asian Economics, Elsevier, vol. 6(3), pages 385-405.
    7. Puhr, Harald & Müllner, Jakob, 2024. "Vox populi, vox dei: A concept and measure for grassroots socio-political risk using Google Trends," Journal of International Management, Elsevier, vol. 30(2).
    8. Buckley, Adrian & Eijgenhuijsen, Hans, 1997. "A conceptual framework for evaluating foreign investments," Serie Research Memoranda 0008, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    9. Peter Markovič & Michal Šinský, 2009. "Trends in application of capital budgeting methods for investment projects evaluation," Ekonomika a Management, Prague University of Economics and Business, vol. 2009(1).

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