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Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

Author

Listed:
  • Subash Sasidharan

    (Department of Humanities and Social Sciences, Indian Institute of Technology Madras, India. Author email: subash@iitm.ac.in)

  • M. Padmaja

    (SRM Institute of Science and Technology, Chennai, India. E-mail: padmaja251988@gmail.com Author email: padmaja251988@gmail.com)

Abstract

This study examines the role of financing constraints in explaining outward foreign direct investment (FDI) using unique firm-level panel data on Indian manufacturing during the period 2007–2014. We consider the role of both internal and external finance, and employ instrumental variable probit and Tobit models to examine financing constraints in outward FDI decisions and intensity. We find that internal finance impacts the likelihood of outward FDI. Further, using count data models, we examine financing constraints in determining strategies regarding a firm's number of affiliates abroad. Our findings reveal that firms with greater cash flows and liquidity are likely to have more foreign affiliates.

Suggested Citation

  • Subash Sasidharan & M. Padmaja, 2018. "Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India," Asian Development Review, MIT Press, vol. 35(1), pages 108-132, March.
    • Handle: RePEc:tpr:adbadr:v:35:y:2018:i:1:p:108-132
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    2. Ruize Cai & Kyung Hwan Yun & Minho Kim, 2022. "Financing Constraints and Corporate Value in China: The Moderating Role of Multinationality and Ownership Type," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
    3. Van Tien Nguyen & Ngoc Thang Doan, 2023. "Open account, import decision and financial constraints: A cross‐country firm‐level study," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3918-3937, October.
    4. Padmaja Mundakkad, 2018. "Firms' leverage and labour productivity: a quantile regression approach," Economics Bulletin, AccessEcon, vol. 38(4), pages 2331-2344.
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    6. Wen Yue & Xuefei Li, 2023. "Financial constraints and firms’ markup: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.
    7. Guo, Junyan & Fang, Hanqing & Liu, Xuexin & Wang, Cizhi & Wang, Yuan, 2023. "FinTech and financing constraints of enterprises: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    financing constraints; outward FDI; total factor productivity;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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