Based on the official survey data of Taiwanese FDI in China, this study investigates the transaction cost determinants of foreign market entry mode choice. In contrast to the existing literature, this paper constructs a panel data set and makes a dynamic probit analysis on the mode choice between wholly-owned subsidiaries and joint ventures. Empirical results indicate that state dependence between current and past modes plays an important role in determining entry mode choice. However, the impact of state dependence will be reduced significantly if the mode adopted in the previous period is associated with poor performance of the parent firm. There is strong linkage between mode performance and future mode choice. Evidence also shows that the hypothesized influences of transaction cost factors on entry mode choice gain support in the dynamic choice process. (C) 2010 Elsevier B.V. All rights reserved.