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Foreign investors and target firms’ financial structure

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  • Bencivelli, Lorenzo
  • Pisicoli, Beniamino

Abstract

We study how FDIs affect the financial structure of targeted firms, by looking at a sample of foreign acquisitions occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector.

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  • Bencivelli, Lorenzo & Pisicoli, Beniamino, 2022. "Foreign investors and target firms’ financial structure," International Economics, Elsevier, vol. 169(C), pages 230-251.
    • Handle: RePEc:eee:inteco:v:169:y:2022:i:c:p:230-251
    DOI: 10.1016/j.inteco.2022.01.006
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    More about this item

    Keywords

    FDIs; Firms' financial structure; Non-bank financing; Investment;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts

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