• Do Firms’ Internal Factors Affect Foreign Investment Decision Behaviors?

Abstract

This study, based on the behavioral theory of the firm (Cyert and March 1963), investigates Taiwanese firms’ China investment decisions with respect to five internal factors: attainment discrepancy, organization resource, survival distress, and bankruptcy threat. However, prior researches on foreign direct investment decision makings focus mostly on external rather than internal factors. By analyzing data of Taiwanese firms’ investing in China between 1997 and 2007, we find that their investing behaviors are significantly and positively related to attainment discrepancy, but negatively to potential resource. Furthermore, firms that are underperforming and facing the threat of bankruptcy have a higher tendency to launch investments in China. Empirical results show that the relationships between China investment behaviors and the positive or negative attainment discrepancy are opposite to our predictions. For verifying this phenomenon, we further examine firms’ behaviors and find that their investment intensities in China exhibit significantly positive association with performance. Therefore, it can not be explained by the risky behaviors in the behavioral theory of the firm. On the other hand, when more resources are available, firms are likely to increase their investment intensity in China, meanwhile, the peer competitive pressure is the primary factor in investment decision making. This should have been the agglomeration effect prevalent among Taiwanese firms.

Keywords: Behavioral theory of the firm, Attainment discrepancy, Organization resource,

Competitive pressure, Survival distress, Bankruptcy threat