Working Paper No. 741

Financial Determinants of Foreign Direct Investment

Published: April 1, 2008Keywords: FDI; Cross-border Acquisitions; Investment-q; Cost of Capital; Cross-listing; SegmentationJEL-codes: E22; F21; F23; G3; L23

Financial Determinants of Foreign Direct Investment Jens Forssbæck and Lars Oxelheim


We argue that mainstream FDI theory underplays financial motivations for interna-tional investment, and suggest several possible channels for a distinct cost-of-capital effect on FDI. Using a sample of European firms’ cross-border acquisitions, and controlling for traditional firm-level determinants of FDI, we find strong evidence in favor of a cost-of-equity effect, whereas the effect of debt costs is indeterminate. We further find that financial determinants are more important for firms originating in relatively less financially developed countries and for firms with high knowledge intensity.

 

Lars Oxelheim

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An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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