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Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective

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Author Info

  • Forssbaeck, Jens

    (Lund Institute of Economic Research)

  • Oxelheim, Lars

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

Abstract

In this paper we empirically test the role of firm-specific financial characteristics as drivers of international investment and production. We hypothesize that financial strength generates advantages that can be exploited through cross-border investment activity. The hypothesis is tested in a series of binary-response models, using a sample of 1379 European non-financial firms’ international acquisitions. Controlling for traditional firm- and target-country-specific FDI determinants within an OLI framework, we find strong evidence that financial factors play a significant role in explaining cross-border investment. We conclude that without explicit consideration of the financial dimension, firms’ FDI decisions cannot be properly understood.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 767.

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Length: 34 pages
Date of creation: 24 Sep 2008
Date of revision:
Publication status: Published as Forssbaeck, Jens and Lars Oxelheim, 'Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective' in International Business Review, 2008, pages 630-641.
Handle: RePEc:hhs:iuiwop:0767

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Related research

Keywords: FDI; OLI; Cross-border Acquisitions; Cost of Capital; Financial Strategy; Financial Variables;

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References

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  1. Oxelheim, Lars & Randøy, Trond, 2001. "The Impact of Foreign Board Membership on Firm Value," Working Paper Series 567, Research Institute of Industrial Economics.
  2. Marco Pagano & Ailsa A. Röell & Josef Zechner, 2002. "The Geography of Equity Listing: Why Do Companies List Abroad?," Journal of Finance, American Finance Association, vol. 57(6), pages 2651-2694, December.
  3. Oxelheim, Lars & Randøy, Trond & Stonehill, Arthur, 2001. "On the treatment of finance-specific factors within the OLI paradigm," International Business Review, Elsevier, vol. 10(4), pages 381-398, August.
  4. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  5. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  6. Bruce Kogut & Nalin Kulatilaka, 1994. "Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network," Management Science, INFORMS, vol. 40(1), pages 123-139, January.
  7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  8. Smart, Scott B. & Zutter, Chad J., 2003. "Control as a motivation for underpricing: a comparison of dual and single-class IPOs," Journal of Financial Economics, Elsevier, vol. 69(1), pages 85-110, July.
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Cited by:
  1. Asongu Simplice, 2012. "Linkages between Investment Flows and Financial Development: Causality Evidence from Selected African Countries," Working Papers 12/029, African Governance and Development Institute..

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