Performance feedback and location choice of foreign direct investment

Integrating the behavioral theory of the firm and the OLI paradigm, this paper studies how performance feedback affects the location choice of emerging market firms between developed countries (DCs) and less developed countries (LDCs) during the process of internationalization. Using the sample of 1,306 Chinese public listed firms which established new foreign subsidiaries between 2008 and 2019, we find that the further a firm's perfor-mance is below aspiration, the more likely it will invest in LDCs than DCs, whereas the further a firm's per-formance is above aspiration, the more likely it will invest in DCs than LDCs. In addition, technology-based capability and labor intensive production capability have moderating effects on the relationship between per-formance feedback and location choice between DCs and LDCs. This paper complements and extends the OLI paradigm by injecting dynamic and non-economic factors to explain OFDI location choice.