Journal of Organisational Studies and Innovation
An Information Cost Perspective of Foreign Ownership Choice
National Cheng Kung University, Tainan, Taiwan*
Abstract: This paper examines investment strategy for a foreign affiliate via an information cost perspective. Information costs in this study refer to the time and expense consumed by a firm in information gathering, processing, and dissemination for appraising an investment decision under a specific environmental context. Moving beyond the transaction-cost explanations laying emphasis on the costs brought by mankind dishonesty, our information cost model of foreign ownership choice takes account of socio-cultural impact and sheds light on the costs associated with procuring and processing information needed to make investment decisions in host environments. Empirical analyses using binomial logistic regression on a sample of 1,144 foreign entries made by the U.S. companies support our conjecture that a firm prefers wholly-owned subsidiary to joint venture when entering a country with a higher degree of information codification and information diffusion that reflect lower information costs. Moreover, through multiple regression analyses, we found that how an institutional environment expresses and distributes information are tied closely to its national cultural characteristics. Three important theoretical contributions include, first, extending Boisot’s cultural space to foreign ownership decisions; second, offering a socio-cultural aspect to complement the transaction-cost rationale; third, lending support to the Uppsala school’s ‘internationalization theory’ that implicitly recognizes information costs.
Keywords: Foreign Ownership, Entry Mode Choice, Information Cost, Boisot’s Cultural Space.