Working Paper No. 767

Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective

Published: September 23, 2008Pages: 34Keywords: FDI; OLI; Cross-border Acquisitions; Cost of Capital; Financial Strategy; Financial VariablesJEL-codes: E22, F21, F23, L23

Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective Jens Forssbaeck and Lars Oxelheim


In this paper we empirically test the role of firm-specific financial characteristics as drivers of international investment and production. We hypothesize that financial strength generates advantages that can be exploited through cross-border investment activity. The hypothesis is tested in a series of binary-response models, using a sample of 1379 European non-financial firms’ international acquisitions. Controlling for traditional firm- and target-country-specific FDI determinants within an OLI framework, we find strong evidence that financial factors play a significant role in explaining cross-border investment. We conclude that without explicit consideration of the financial dimension, firms’ FDI decisions cannot be properly understood.

 

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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