2011

FDI and the Role of Financial Market Quality

Reprint No. 2011:21

Author(s): Jens Forssbaeck and Lars OxelheimYear: 2011 Title: The Future of Foreign Direct Investment and the Multinational Enterprise Editor(s): Ravi Ramamurti and Niron HashaiPublisher: Emerald Group Publishing LtdCity: Bingley Pages: 85–109
Online article (restrictions may apply)


In this chapter we analyze the role of financial factors in the underlaking of cross-border acquisitions. We discuss financial firm-specific advantages as drivers of these acquisilions as well as the role of the development of the home financial market in exploiting these advantages. Based on a sample of 1,447 European firms' cross-border acquisitions amounting to a total of
566 acquisitions spanning from 0 to 18 for individual firms, we find strong evidence in favor of a cost-of-equity effect on the occurrence of FDI, whereas the stand-alone effect of debt costs is indeterminate. However, allowing firm-specific financial characteristics to be conditioned by homecountry financial development, both equity costs and debt Costs are found highly significant explanatory factors for cross-border acquisitions undertaken by the sample firms.


Reference:
Forssbaeck, Jens and Lars Oxelheim (2011), "FDI and the Role of Financial Market Quality". Pp. 85–109 in Ravi Ramamurti and Niron Hashai, eds., The Future of Foreign Direct Investment and the Multinational Enterprise. Bingley: Emerald Group Publishing Ltd.

Lars Oxelheim

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Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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