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What determines the profitability of foreign direct investment? A subsidiary-level analysis of Japanese multinationals

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  • Mariko Sakakibara

    (University of California, CA, USA)

  • Hideki Yamawaki

    (Claremont Graduate University, CA, USA)

Abstract

This article identifies key factors that determine the profitability of Japanese firms abroad by using panel-data regression models on new, large-scale, subsidiary-level data over the 1990-1996 period. The results show that the determinants of subsidiary profits differ across host regions, suggesting that the economic and institutional factors specific to host regions influence significantly the profit performances of overseas subsidiaries. While the size effect on the subsidiary profitability is present in all the regions, other effects, such as experience, local supplier networks, local sales and macroeconomic conditions affect the performance of subsidiaries in a different manner by region. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Mariko Sakakibara & Hideki Yamawaki, 2008. "What determines the profitability of foreign direct investment? A subsidiary-level analysis of Japanese multinationals," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(2-3), pages 277-292.
    • Handle: RePEc:wly:mgtdec:v:29:y:2008:i:2-3:p:277-292
    DOI: 10.1002/mde.1392
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    2. Trąpczyński, Piotr & Banalieva, Elitsa R., 2016. "Institutional difference, organizational experience, and foreign affiliate performance: Evidence from Polish firms," Journal of World Business, Elsevier, vol. 51(5), pages 826-842.
    3. Trąpczyński, Piotr & Halaszovich, Tilo F. & Piaskowska, Dorota, 2020. "The role of perceived institutional distance in foreign ownership level decisions of new MNEs," Journal of Business Research, Elsevier, vol. 108(C), pages 435-449.
    4. HOSONO Kaoru & MIYAKAWA Daisuke & TAKIZAWA Miho, 2017. "Do Overseas Subsidiaries Benefit from Parent Firms' Intangibles?," Discussion papers 17073, Research Institute of Economy, Trade and Industry (RIETI).
    5. Golubeva, Olga, 2020. "Maximising international returns: Impact of IFRS on foreign direct investments," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(2).
    6. Cynthia E. Clark & Punit Arora & Patricia Gabaldon, 2022. "Female Representation on Corporate Boards in Europe: The Interplay of Organizational Social Consciousness and Institutions," Journal of Business Ethics, Springer, vol. 180(1), pages 165-186, September.

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