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Downside risk implications of international investments in subsidiary and joint ventures

Author: Reuer, Jeffrey J. ; Leiblein, M. JINSEAD Area: Strategy Series: Working Paper ; 98/28/SM Publisher: Fontainebleau : INSEAD, 1998.Language: EnglishDescription: 30 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper examines international investments thought to enhance corporate flexibility and thereby reduce risk. Recent theory on the multinational firm emphasizes the flexibility and risk benefits attainable from a foreign subsidiary network that enables global shifts in value chain activities. International joint ventures (IJV's) have also been viewed as an attractive means of reducing risk by providing firms flexibility and growth options with a limited capital outlay. This paper empirically tests these ideas using a downside conception risk. The empirical evidence indicates that firms with broad subsidiary networks and firms active forming IJV's experience highier, rather than lower levels of downside risk compared to other organizations. These findings suggest firms' capabilities in avoiding downside outcomes and seizing upside opportunities through multinational involvement and IJVs may actually be rather limited
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This paper examines international investments thought to enhance corporate flexibility and thereby reduce risk. Recent theory on the multinational firm emphasizes the flexibility and risk benefits attainable from a foreign subsidiary network that enables global shifts in value chain activities. International joint ventures (IJV's) have also been viewed as an attractive means of reducing risk by providing firms flexibility and growth options with a limited capital outlay. This paper empirically tests these ideas using a downside conception risk. The empirical evidence indicates that firms with broad subsidiary networks and firms active forming IJV's experience highier, rather than lower levels of downside risk compared to other organizations. These findings suggest firms' capabilities in avoiding downside outcomes and seizing upside opportunities through multinational involvement and IJVs may actually be rather limited

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