Investment Timing and Performance: Further Evidence

1. Investment Timing and Performance: Further Evidence Huilin Lin Zhengcang Chen Ryh-song Yeh

2. Research Purposes FDI theories answer Why, What, Where and How but not When questions. The purposes of this research are to examine • The determinants of Taiwanese investment in Mainland China at different timing; • Whether the early investors perform better than do the later investors; • Additional objective: Does industry matter?

3. Literature Review (1) • Dunning’s three pillars has been used extensively: ownership, location and internalization advantages; • + network theory, strategic intents; • Time element has not yet been seriously considered.

4. Literature Review (2) • Conceptually, in real world, a CEO has to decide when to invest, now or later and whether the decision is good or bad will then be evaluated by future performances. • Empirically, researchers ask similar questions. • A gap between conceptual and empirical perspectives: prior vs. posterior.

5. Literature Review (3) • Prior perspective: • The CEO collects information: internal and external, SWOT, ---- • Uncertain, risk: unknown, unpredictable and uncontrollable elements; • Animal spirit - CEO’s or Top management’s gut

6. Literature Review (4) • Posterior perspective • Like evaluating a leader’s decision: Jorge Washington, Lincoln, Clinton, Mao Zedong, Chiang Kai She, Jack Welch, ---- • Evaluating Bush’s decision in evading Iraq: • What determine Bush’s decision? • Was the decision good or bad? • Issues: What criteria? Evaluating periods covered.

7. Literature Review (5) ROI . Early Investors 0 ROI 0 Later Investors 1990 2000 2005

8. Literature Review (6) • Research questions: • The determinants of investment in 1990 and 2000? • Performances of early and later investors

9. Literature Review (7) • Ownership Advantagesindicate a firm’s organizational capability that encouragesa firm to invest earlier than do the other firms that do not own the advantages. These advantages include • the size of ssets (Tan,Vertinsky, 1996; Blandon, 1999; Gaba,Pan,Ungson, 2002; Leung et al, 2003；Raff & Ryan, 2006), • advertising (Tan & Vertinsky, 1996), • R&D expenditure (Tan & Vertinsky, 1996; Raff &Ryan, 2006), • Export ratio (Tan & Vertinsky, 1996; Raff,Ryan, 2006), • International experience (Gaba et al, 2002; Leung et al, 2003; Blandon, 1999), • Profitability (Tan & Vertinsky, 1996), • Asset mobility (Tan & Vertinsky, 1996; Leung et al, 2003), • Ability of vertical integration (Tan & Vertinsky, 1996), • Degree of diversification (Raff & Ryan, 2006) and • Economy of scope (Gaba et al, 2002).

10. Literature Review (8) • Internalization Advantages, which indicate how a firm enters foreign market, include • Entry mode (Gaba et al, 2002; Pennings & Slenuwaegen, 2004), • Network relation (Tan & Vertinsky, 1996; Raff & Ryan, 2006).

11. Literature Review (9) • Location advantages,which indicate the attractiveness or risks of a host country a firm plans to enter, include • Market centrality (Tan & Vertinsky, 1996), • Market niche of host country (Tan & Vertinsky, 1996; Mitra & Golder, 2002, Raff & Ryan, 2006), • Risk of host country (Gaba et al, 1996; Leung et al, 2003), • Growth of Product (Gaba et al, 1996; Raff & Ryan, 2006), • Trade volume (Leung et al, 2003), • The number of firms enters earlier (Tan & Vertinsky, 1996; Baba et al, 2003).

12. Literature Review (10) Performance indicators: • Profits, either ROI or ROA (Luo, 1998; Pan et al, 1999; Pan & Chi, 1999); • Market share (Pan et al, 1999; Delios & Makino, 2003); • Survival rate (Delios & Makino, 2003); • Waiting time for making profits (Leung et al, 2003).

13. Literature Review (11) Other Determinants of performance: • Entry mode (Luo, 1998; Pan et al, 1999; Pan & Chi, 1999; Delios & Makino, 2003), • Asset (Pan et al, 1999; Leung et al, 2003; Delios & Makino, 2003), • Utilization rate of asset (Pan et al, 1999; Pan & Chi, 1999), • Total investment (Pan & Chi, 1999), • Characteristics of Asset (Delios & Makino, 2003), • Diversification degree (Luo, 1998; Delios & Makino, 2003), • Export ratio (Pan & Chi, 1999; Luo, 1998) • International experience (Delios & Makino, 2003) • Industry concentration (Pan et al, 1999), • Investment location (Luo, 1998; Pan et al, 1999; Pan & Chi, 1999), • Market penetration (Leung et al, 2003), • Total investment from home country (2003), • Total export from home country (Drake & Caves, 1974? ).

14. Model Specification (1) For investment timing: two ordered probit models • For traditional industry: • Dependent variable: three investment periods: early, second early and later periods • For electronics industry: • Dependent variable: two periods: early and later periods; • Independent variables: firm characteristics, location factors (Taiwan and China), Internalization factors

15. Model Specification (2) For timing and performance: OLS • Dependent variable: value added per employee and rate of return of total assets • Independent variables: location factors, firm characteristics

16. Results (1) • Traditional and electronics industries are different in investment timing; • The factors that postponed investment in China: • Technology purchase • Profitability

17. Results (2) • Investment timing is a negative factor to the rate of return, but it is negative but not significant to the value added per employee. • The aggregate environment risk is important in explaining the time effect on corporate performance with control of other firm factors. • The differences between traditional and electronics are different, revealing in various factors.

18. Conclusion • China is an important in global and Taiwan economies, and the globalization of Taiwanese firms. • This research is an additional contribution to the increasing but still limited researches in China. • Time factor is closely related to the risk of location environment. • Industry matters in investment timing.

19. Limitations & Suggestions • Limitations: the usefulness of posterior research is limited. • Suggestions: • Case studies • Longer period (example: Giant in the U.S.) • Multiple criteria incorporating with strategic objectives • More details in environmental factors for both home and host countries