The Foundations of International Business: Cross‐Border Investment Activity and the Balance between Market‐Power and Efficiency Effects

26 Pages Posted: 7 Apr 2017

See all articles by Joseph A. Clougherty

Joseph A. Clougherty

University of Illinois at Urbana-Champaign

Jin Uk Kim

University of Illinois at Urbana-Champaign - College of Business

Bradley R. Skousen

Ohio State University (OSU) - Fisher College of Business

Florian Szücs

Vienna University of Economics and Business

Date Written: May 2017

Abstract

The foundational international business (IB) scholarship grappled with whether multinational enterprises (MNEs) are largely efficiency‐enhancing or market‐power inducing institutions. Contemporary scholarship, however, often associates foreign direct investment (FDI) with efficiency‐enhancing properties and thus neglects the market‐power interpretation of the MNE. Such an imbalance is problematic given that the theoretical and empirical justifications behind the field's embrace of the efficiency interpretation are not fully evident. Instead, both efficiency and market‐power effects are seemingly present in cross‐border investment activity. Based on a comprehensive sample of up to 4,361 cross‐border investments materializing between 1986 and 2010, we present theoretically‐grounded hypotheses with regard to when market‐power effects will tend to dominate efficiency effects. We find that cross‐border investments undertaken by emerging‐market MNEs in both developed and emerging markets tend to involve substantial efficiency effects and minimal market‐power effects when compared with the cross‐border investments undertaken by developed‐country MNEs in both developed and emerging markets.

Keywords: emerging markets, FDI, international acquisitions, multinational enterprise, theory of FDI

Suggested Citation

Clougherty, Joseph A. and Kim, Jin Uk and Skousen, Bradley R. and Szücs, Florian, The Foundations of International Business: Cross‐Border Investment Activity and the Balance between Market‐Power and Efficiency Effects (May 2017). Journal of Management Studies, Vol. 54, Issue 3, pp. 340-365, 2017. Available at SSRN: https://ssrn.com/abstract=2946546 or http://dx.doi.org/10.1111/joms.12205

Joseph A. Clougherty (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 S. Sixth Street
350 Wohlers Hall, MC-706
Champaign, IL 61820
United States

Jin Uk Kim

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

Bradley R. Skousen

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Florian Szücs

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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