ACCOUNTING FOR ENDOGENEITY WHEN ASSESSING STRATEGY PERFORMANCE - DOESENTRY MODE CHOICE AFFECT FDI SURVIVAL

Firms choose strategies based on their attributes and industry conditi ons; therefore, strategy choice is endogenous and self-selected. Empir ical models that do not account for this and regress performance measu res on strategy choice variables are potentially misspecified and thei r conclusions incorrect. I highlight how self-selection on hard-to-mea sure or unobservable characteristics can bias strategy performance est imates and recommend an econometric technique that has been developed to account for this effect. Although this concern applies to a wide ra nge of strategy questions, to demonstrate its effect I empirically exa mine if entry mode choice (acquisition versus greenfield) influences f oreign direct investment survival. In specifications that do not accou nt for self-selection, I find that greenfield entries have survival ad vantages compared to acquisitions. This confirms previous findings. Ho wever, the significance of this effect disappears once I account for s elf-selection of entry mode in the empirical estimates. The results co nfirm that estimates from models that do not account for self-selectio n of strategy choice can lead to incorrect or misleading conclusions.