Information voids and cross-border bandwagons of foreign direct investment into an emerging economy

Management

Yang, Jing Yu; Kim, Minyoung; Li, Jiatao; Lu, Jane Wenzhen

Published in Strategic Management Journal, May 2023 (Online)

Cross-border bandwagons of foreign direct investment (FDI) into emerging economies have been a prominent phenomenon driving globalization in the past three decades. This study examines such mass FDI entry process into an emerging economy, by following global investors from multiple home countries. Complementing the frequency mechanism, Jane Lu of the Department of Management and co-authors introduce a cohesion mechanism that can also drive cross-border bandwagons of FDI. Drawing on the notion of information voids, they submit that the two mechanisms are based on different origins of information, and their relative effects vary depending on the extent of information voids in the host country. Analysing a firm-level data set of Japanese firms’ FDI entries into China between 1986 and 2000, they find a high level of information voids in the host country strengthens Japanese firms’ cohesion-based cross-border bandwagons of FDI, while suppressing their frequency based cross-border bandwagons of FDI.