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Corporate financial determinants of foreign direct investment

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  • Forssbæck, Jens
  • Oxelheim, Lars

Abstract

Financial market incompleteness and (partial) segmentation of financial markets internationally may endow some firms with a financial advantage which can be exploited through foreign direct investment. We argue that this advantage appears as a distinct cost-of-capital effect on FDI, and identify possible channels for such an effect. Using a sample of European firms' cross-border acquisitions, and controlling for traditional firm-level determinants of FDI, we find strong support for a cost-of-equity effect, whereas the effect of debt costs is indeterminate. Moreover, financial FDI determinants are more important for firms with high knowledge intensity and for firms resident in relatively less financially developed countries.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 51 (2011)
Issue (Month): 3 (June)
Pages: 269-282

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Handle: RePEc:eee:quaeco:v:51:y:2011:i:3:p:269-282

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Web page: http://www.elsevier.com/locate/inca/620167

Related research

Keywords: FDI Cross-border acquisitions Investment-q Cost of capital Cross-listing Segmentation;

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Cited by:
  1. Forssbaeck, Jens & Oxel, Lars, 2014. "The Multi-faceted Concept of Transparency," Working Paper Series 1013, Research Institute of Industrial Economics.
  2. Oxelheim, Lars & Randoy, Trond & Stonehill, Arthur, 2011. "What Can International Finance Add to International Strategy?," Working Paper Series 888, Research Institute of Industrial Economics.

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