Developing an Investment Process for the Process of Investing in Development: - A Case Study of the International Finance Corporation (IFC)

Abstract: Purpose – The aim of this study is to illustrate a complete investment decision process and analyze what factors affects it. The overall research question is formulated as “How can management control tools be used during the investment decision process to reach corporate missions in the financial industry?” Approach – The descriptive nature of the research question allows a qualitative approach, hence a case study of developmental bank International Finance Corporation (IFC) is carried out. In studying the investment decision-making, the role of measurement systems to reach corporate missions, personal motivation factors and management control systems are taken into consideration. Empirical Findings – The empirical findings are analyzed through a theoretical framework based on previous research theories. Joseph Bower’s 1970 Resource allocation process-model serves as a point of departure when exploring previously conducted investment process studies. The Bower model studies privately owned manufacturing companies doing capital investments. To fill out the research gap, our model studies a multi-government owned bank doing financial investments. Conclusion – The Bower model is helpful when analyzing also financial institutions but four additional factors have to be taken into consideration when analyzing financial institutions: 1. Complexity: To make a financial investment requires a more complex investment decision process where decisions are taken on several instances than Bower’s linear capital investment process. 2. Accountability: Evaluation of the investment and holding people accountable is critical for financial player but not for the manufacturing. 3. Ownership: The multinational ownership results in more multifaceted missions and than just financial profit to full fill. Also political conflicts have to be accounted for. 4. Legitimacy: Public pressure and the institutional environment affect what kind of management control systems a developmental bank can use. It is also concluded that IFC has developed an investment outcome tracking system that can be useful for other developmental organizations and that it is difficult to implement a formal performance measurement system related to financial reward due to legitimacy issues from the institutional environment.