We develop a real option hierarchical model of entry mode choice and test predictions using a sample of US companies in Latin America and the Caribbean between 1980 and 2005. Probit results indicate that the choice between a real option non-equity mode and equity commitment is influenced by previous acquisition experience, R&D and advertising intensities, and country risk. The choice of the more flexible real option JV mode over WOEs is positively related to greater firm size and market-to-book ratio in countries with better infrastructure. In contrast, greater marketing intensity and lower country risk encourage WOEs.
Blanco, Luisa; Wooster, Rossitza; and Sawyer, W. Charles, "Equity Commitment under Uncertainty: A Hierarchical Model of Real Option Entry Mode Choices" (2014). Pepperdine University, School of Public Policy Working Papers. Paper 50.