Transaction cost-enhanced entry mode choices and firm performance

According to transaction cost theory, firms select the international mode of entry that provides the most efficient form of governance. However, previous scholarship largely neglects the impact of transaction cost variables on entry mode choice and firm performance. In this study, we add transaction cost variables to a set of variables previously used to predict firm mode choice and performance. We theorize and find that firms selecting these 'transaction cost-enhanced international entry modes' perform better than firms using other modes of entry. Based on our results, we conclude that 'enhanced' transaction cost theory appears to be normative as well as descriptive with respect to international entry mode decisions. Copyright (C) 2003 John Wiley Sons, Ltd.