Binomial Logistic Models, Transaction Costs, and Joint Ventures: A Methodological Note

  • Jean-François Hennart


This paper discusses the use of binomial logit models by researchers trying to explain the choice made by foreign direct investors between entering a foreign market with wholly-owned subsidiaries or with joint ventures. The paper first discusses the theory of the optimal level of equity stake a parent should take in its foreign affiliates. I then critically examine the methodology chosen by researchers attempting to test this theory, and specifically the use of binomial logit models, the operationalization of the dependent variable as a categorical variable, and the data collection techniques. The paper then examines the practical problems and limitations faced in conducting such research, “using my 1991 Management Science study” of the ownership policies of Japanese foreign direct investors in the United States as an example. I conclude by suggesting areas for future research.


Joint Venturis Local Firm Foreign Affiliate Transaction Cost Theory Equity Stake 
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Copyright information

© Springer Science+Business Media Dordrecht 1997

Authors and Affiliations

  • Jean-François Hennart
    • 1
  1. 1.University of Illinois at Urbana-ChampaignUSA

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