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Financial Determinants of Foreign Direct Investment

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  • Forssbæck , Jens

    ()
    (Lund Institute of Economic Research)

  • Oxelheim, Lars

    ()
    (Research Institute of Industrial Economics (IFN))

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

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Cited by:
  1. Jochem, Axel, 2008. "International financial competitiveness and incentives to foreign direct investment," Discussion Paper Series 1: Economic Studies 2008,29, Deutsche Bundesbank, Research Centre.

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