Product Market Competition and FDI Decisions

Tiago Loncan

doi:10.1017/S0022109022000679

Product Market Competition and FDI Decisions

Tiago Loncan

Accounting & Financial Management

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

281 Downloads (Pure)

Abstract

I examine whether competition from domestic industry rivals affects firms' proclivity to undertake foreign direct investment (FDI) and their country location choices. I find that competition affects foreign production decisions and the geography of international investments. While firms enduring stiffer competition are significantly less likely to undertake FDI, this effect is heterogeneous across firms. Competition deters FDI more strongly when costs are heavier, whereas it has weaker effects when efficiency is higher, growth opportunities are valuable, and cash reserves are higher. FDI location models suggest that when going abroad, firms facing stronger competition are more likely to pursue economies of productivity and taxation.

Original language	English
Pages (from-to)	2617–2656
Number of pages	40
Journal	JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS
Volume	58
Issue number	6
Early online date	18 Jul 2022
DOIs	https://doi.org/10.1017/S0022109022000679
Publication status	Published - Sept 2023

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10.1017/S0022109022000679

Product Market Competition and_LONCAN_Publishedonline18July2022_GREEN AAMAccepted author manuscript, 525 KB

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abstract = "I examine whether competition from domestic industry rivals affects firms' proclivity to undertake foreign direct investment (FDI) and their country location choices. I find that competition affects foreign production decisions and the geography of international investments. While firms enduring stiffer competition are significantly less likely to undertake FDI, this effect is heterogeneous across firms. Competition deters FDI more strongly when costs are heavier, whereas it has weaker effects when efficiency is higher, growth opportunities are valuable, and cash reserves are higher. FDI location models suggest that when going abroad, firms facing stronger competition are more likely to pursue economies of productivity and taxation.",

author = "Tiago Loncan",

note = "Funding Information: I am grateful to Dimitris Andriosopoulos, Warren Bailey, Eric de Bodt (the referee), Sabri Boubaker, Jarrad Harford (the editor), Andrew Marshall, Syrine Sassi, Philip Valta, and the participants at the 2021 Royal Economic Society Conference, the 2021 Financial Management Association Annual Meeting, and the 2021 IFABS Oxford Conference for helpful comments and suggestions. Any errors are my own. Publisher Copyright: {\textcopyright} The Author(s), 2022.",

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Product Market Competition and FDI Decisions

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