2011

Corporate Financial Determinants of Foreign Direct Investment

Reprint No. 2011:25

Author(s): Jens Forssbaeck and Lars OxelheimYear: 2011 Title: Quarterly Review of Economics and Finance Volume (No.): 51 (3) Pages: 269–282
Online article (restrictions may apply)


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.


Reference:
Forssbaeck, Jens and Lars Oxelheim (2011), "Corporate Financial Determinants of Foreign Direct Investment". Quarterly Review of Economics and Finance 51(3), 269–282.

Lars Oxelheim

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