Within-Country Growth Options Versus Across-Country Switching Options in Foreign Direct Investment

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Abstract

This article considers the value associated with foreign direct investment under different types of uncertainty related to the international context. We examine how configuring foreign direct investments differently within and across countries provides the firm with flexibility under exchange rate uncertainty and market growth uncertainty. We find that across-country switching options embedded in investments dispersed across countries are more associated with higher firm value under high exchange rate uncertainty, while within-country growth options embedded in those concentrated within countries are more associated with higher market growth uncertainty. We also find that across-country switching options call for higher ownership levels, while within-country growth options require lower ownership levels in international investment portfolio.

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