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Finance-specific factors as drivers of cross-border investment--An empirical investigation

  • Forssbæck, Jens
  • Oxelheim, Lars

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 foreign direct investment (FDI) determinants, 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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Article provided by Elsevier in its journal International Business Review.

Volume (Year): 17 (2008)
Issue (Month): 6 (December)
Pages: 630-641

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Handle: RePEc:eee:iburev:v:17:y:2008:i:6:p:630-641
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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. 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.
  3. 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.
  4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. 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.
  6. 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.
  7. 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.
  8. Anant K Sundaram & Dennis E Logue, 1996. "Valuation Effects of foreign Company Listings on U.S. Exchanges," Journal of International Business Studies, Palgrave Macmillan, vol. 27(1), pages 67-88, March.
  9. Stephen R. Foerster & G. Andrew Karolyi, 1999. "The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States," Journal of Finance, American Finance Association, vol. 54(3), pages 981-1013, 06.
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