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Financial Determinants of Foreign Direct Investment

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Author Info
Forssbæck , Jens () (Lund Institute of Economic Research)
Oxelheim, Lars () (Research Institute of Industrial Economics (IFN))

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Abstract

We argue that mainstream FDI theory underplays financial motivations for interna-tional investment, and suggest several possible channels for a distinct cost-of-capital effect on FDI. Using a sample of European firms’ cross-border acquisitions, and controlling for traditional firm-level determinants of FDI, we find strong evidence in favor of a cost-of-equity effect, whereas the effect of debt costs is indeterminate. We further find that financial determinants are more important for firms originating in relatively less financially developed countries and for firms with high knowledge intensity.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 741.

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Length: 67 pages
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:hhs:iuiwop:0741

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Related research
Keywords: FDI; Cross-border Acquisitions; Investment-q; Cost of Capital; Cross-listing; Segmentation;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
G30 - Financial Economics - - Corporate Finance and Governance - - - General
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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