| What Drives Foreign Subsidiaries to Conduct Subsequent OFDI? A Behavioral Perspective |
Received:October 15, 2017 Revised:October 15, 2017 |
Key Words: OFDI; performance shortfalls; behavioral theory of the firm; headquarter-subsidiary relationship; entry mode |
| Author Name | Affiliation | | Tingting Li | Renmin University of China | | Ziliang Deng* | Renmin University of China |
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Abstract: |
| This study integrates the behavioral theory of the firm and headquarter-subsidiary literature, trying to capture the rules behind an intriguing phenomenon that more foreign subsidiaries tend to conduct subsequent OFDI in a third country. Based on these two theories, we gain new insight into the effect of performance shortfalls relative to aspiration on a foreign subsidiary’s subsequent OFDI. We hypothesize that when performance shortfalls become larger, the probability for a foreign subsidiary to conduct further OFDI increases. We also argue for three boundary conditions. Entry mode choice moderates the relationship between performance shortfalls and foreign subsidiaries OFDI. Wholly-owned foreign subsidiaries are more likely to conduct subsequent OFDI to mend the performance shortfalls. Institutional distance and market concentration, act as vital environmental factors, will strengthen the positive relationship between shortfalls relative to aspiration and foreign subsidiary’s OFDI. Empirical studies based on the panel data of the subsidiaries of MNEs in China support the abovementioned hypotheses. |
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