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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.

Suggested Citation

  • Forssbæck, Jens & Oxelheim, Lars, 2011. "Corporate financial determinants of foreign direct investment," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(3), pages 269-282, June.
  • Handle: RePEc:eee:quaeco:v:51:y:2011:i:3:p:269-282
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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. Lars Oxelheim & Trond Randøy & Arthur Stonehill, 2012. "What can international finance add to international strategy?," Chapters,in: Handbook of Research on International Strategic Management, chapter 12, pages 238-253 Edward Elgar Publishing.
    3. repec:eee:chieco:v:44:y:2017:i:c:p:1-15 is not listed on IDEAS
    4. Reddy, Kotapati Srinivasa, 2015. "Determinants of Cross-border Mergers and Acquisitions: A Comprehensive Review and Future Direction," MPRA Paper 63969, University Library of Munich, Germany, revised 2015.
    5. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    6. repec:eco:journ1:2017-04-58 is not listed on IDEAS

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