IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v22y2009i1p337-369.html
   My bibliography  Save this article

Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment

Author

Listed:
  • Malcolm Baker
  • C. Fritz Foley
  • Jeffrey Wurgler

Abstract

Empirical evidence of imperfect integration across world capital markets suggests a role for cross-border arbitrage by multinationals. Consistent with multinational arbitrage as a determinant of foreign direct investment (FDI) patterns, we find that FDI flows increase sharply with source-country stock market valuations--particularly the component of valuations that is predicted to revert the next year, and particularly in the presence of capital account restrictions that limit other mechanisms of cross-country arbitrage. The results suggest the existence of a cheap financial capital channel in which FDI flows reflect, in part, the use of relatively low-cost capital available to overvalued parents in the source country. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Malcolm Baker & C. Fritz Foley & Jeffrey Wurgler, 2009. "Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 337-369, January.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:1:p:337-369
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhn027
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:22:y:2009:i:1:p:337-369. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.