Multinationals as Arbitrageurs: The Effect of Valuations on Foreign Direct Investment
33 Pages Posted: 15 Dec 2011
There are 7 versions of this paper
Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment
Stock Market Valuations and Foreign Direct Investment
The Stock Market and Investment: Evidence from FDI Flows
The Stock Market and Investment: Evidence from FDI Flows
Multinationals as Arbitrageurs: The Effect of Valuations on Foreign Direct Investment
Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment
Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment
Date Written: December 2011
Abstract
Empirical evidence of imperfect integration across world capital markets suggests a role for cross-border arbitrage by multinationals. Consistent with multinational arbitrage as a determinant of foreign direct investment (FDI) patterns, we find that FDI flows increase sharply with source-country stock market valuations—particularly the component of valuations that is predicted to revert the next year, and particularly in the presence of capital account restrictions that limit other mechanisms of cross-country arbitrage. The results suggest the existence of a cheap financial capital channel in which FDI flows reflect, in part, the use of relatively low-cost capital available to overvalued parents in the source country. (JEL F15, F21, F23, G31, G34)
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Value of Investor Protection: Firm Evidence from Cross-Border Mergers
By Arturo Bris and Christos Cabolis
-
Does Governance Travel around the World? Evidence from Institutional Investors
By Reena Aggarwal, Isil Erel, ...
-
Does Governance Travel Around the World? Evidence from Institutional Investors
By Reena Aggarwal, Isil Erel, ...
-
Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment
By Malcolm P. Baker, C. Fritz Foley, ...
-
Shareholders at the Gate? Institutional Investors and Cross-Border Mergers and Acquisitions
By Massimo Massa, Miguel A. Ferreira, ...
-
Shareholders at the Gate? Institutional Investors and Cross-Border Mergers and Acquisitions
By Miguel A. Ferreira, Massimo Massa, ...
-
Determinants of Cross-Border Mergers and Acquisitions
By Isil Erel, Rose C. Liao, ...
-
World Markets for Mergers and Acquisitions
By Isil Erel, Rose C. Liao, ...
-
Adopting Better Corporate Governance: Evidence from Cross-Border Mergers
By Arturo Bris, Neil Brisley, ...