The Influence of Firm’s Size and International Experience on the Ownership Structure of Italian FDI in Manufacturing

The Influence of Firm’s Size and
International Experience on the
Ownership Structure of Italian
FDI in Manufacturing

ABSTRACT. The literature on foreign direct investment
(FDI) has analysed the entry mode choice by multinational enterprises (MNEs) from several theoretical viewpoints.
Nevertheless, previous studies have mainly focused on the behaviour of large and established MNEs while little attention has been given to small- and medium-sized firms.
The paper aims at providing further empirical evidence on the role of firm size and international experience in influencing the ownership structure of FDI. The main hypothesis is that smaller firms, characterised by financial and managerial constraints, as well as firms lacking experience in managing foreign operations, suffer from a condition of adverse asymmetry in information costs, compared to their competitors.
Therefore, they are forced to act prudently, minimising risk and thus preferring a less control arrangement of foreign subsidiaries.
A binomial logistic model is developed with reference to manufacturing foreign direct investments undertaken by Italian firms in the period 1986–1993.

1. Introduction
One of the most important decisions faced by a company intending to undertake a foreign direct investment (FDI) concerns the ownership structure of the foreign subsidiary. A number of alternatives are possible, ranging from a minority stake to the ownership of 100% of the foreign subsidiary’s stakeholdings. In recent years the economic literFinal version accepted on February 13, 1997
Marco Mutinelli
University of Pavia
Pavia, Italy and Lucia Piscitello
Politecnico di Milano
Milano, Italy

Small Business Economics 11: 43–56, 1998.
© 1998 Kluwer Academic Publishers. Printed in the Netherlands.

Marco Mutinelli
Lucia Piscitello

ature has given increasing attention to the factors influencing that choice and several interpretations emanating from different theoretical

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