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Financial Determinants of Foreign Direct Investment

Author

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  • Forssbæck , Jens

    (Lund Institute of Economic Research)

  • Oxelheim, Lars

    (Research Institute of Industrial Economics (IFN))

Abstract

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.

Suggested Citation

  • Forssbæck , Jens & Oxelheim, Lars, 2008. "Financial Determinants of Foreign Direct Investment," Working Paper Series 741, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0741
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    Cited by:

    1. Jochem Axel, 2010. "International Financial Competitiveness and Incentives to Foreign Direct Investment," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(1), pages 42-58, February.

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    More about this item

    Keywords

    FDI; Cross-border Acquisitions; Investment-q; Cost of Capital; Cross-listing; Segmentation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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