We develop a signaling game model of investment to explore the effects of ambiguity aversion on corporate equilibrium strategies, investment dynamics, and financing decisions in incomplete markets with asymmetric information. Our analysis shows that volatility ambiguity aversion has a similar but more pronounced effect than asymmetric information, leading to higher financing costs, lower investment probabilities, and a greater likelihood of non-participation in investment. Importantly, volatility ambiguity aversion exhibits an amplifier effect, magnifying financing costs, adverse selection costs, and distortion in investment choices under asymmetric information. This increased ambiguity aversion raises the chances of inefficient separating and pooling equilibria, resulting in notable welfare losses. These findings highlight the significant impact of ambiguity aversion on strategic decision-making and equilibrium outcomes in investment, particularly in settings marked by information asymmetry and incomplete markets.

We investigate the following important questions in international business: How do MNEs choose ownership strategies when facing strong uncertainty in foreign market entries? How are the choices affected by industry contingencies? Following the key tenets of real options theory, we propose that, under a high level of market uncertainty, MNEs choose more flexible (rather than more committed) ownership strategies that allow adjustment of investment decisions in future. We further suggest that using flexible strategies in response to uncertainty becomes less valuable for MNEs when the industry they enter in the host country enjoys strong sales growth potential, requires less irreversible investments, and has intense competition. Empirically, we analyze the ownership strategies (ownership structure and equity share) of over 5,000 new foreign investments in manufacturing industries in China during 2000- 2006. We find qualified support for our hypotheses and discuss the industry boundary conditions of adopting flexible ownership strategies in foreign market entries.