Entry Modes and Firm Performance in a Transition Economy: Evidence from Inward FDI to Romania

Abstract

The article analyzes the characteristics and performance of foreign direct investment (FDI) to Romania since the 1990s. We provide evidence for some of the commonly advanced propositions about FDI in transition economies, namely the selection of entry and firms’ performance over time and across economic sectors. Contrary to the FDI literature, multinational enterprises in Romania favored greenfield FDI over acquisitions, although this does not apply to oligopolistic and technology intensive industries. Specific relationships between the nationality of the investor, the location and the entry modes decisions are also analyzed. We observed that acquisitions exhibited higher profit margin and turnover compared to greenfield FDI.

KEYWORDS:

• acquisitions
• greenfield investment
• multinational performance
• Romania

Notes

A ratio of 1 indicates that the market value of the company is based solely on its assets. A ratio less than 1 indicates a market value less than the value of the company's assets. Similarly, a ratio greater than 1 indicates a market value greater than the company's assets and, as such, a good acquisition target.