Financial Determinants of Foreign Direct Investment
IFN Working Paper No. 741
67 Pages Posted: 8 Apr 2008
Date Written: April 1, 2008
Abstract
We argue that mainstream FDI theory underplays financial motivations for international 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.
Keywords: FDI, Cross-border Acquisitions, Investment-q, Cost of Capital, Cross-listing, Segmentation
JEL Classification: E22, F21, F23, G3, L23
Suggested Citation: Suggested Citation
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