Liquidity-Driven FDI

Ron Alquist, Rahul Mukherjee and Linda L. Tesar
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Linda L. Tesar: University of Michigan and NBER

No 646, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: We develop a model of foreign direct investment (FDI) in which financially liquid foreign firms acquire liquidity-constrained target firms. Using a large dataset of emerging-market acquisitions, we find evidence supporting three central predictions of the model: (i) firms in external finance dependent and intangible sectors are more likely to be targets of foreign acquisitions; (ii) these targets have ownership structures with larger foreign stakes; (iii) these effects are most prominent in countries with low levels of financial development. The regression evidence indicates that liquidity is at least as economically important as technology- or trade-related motives for FDI in emerging-market economies.

Keywords: Foreign direct investment; cross-border mergers and acquisitions; nancial development; external nance dependence; asset tangibility; emerging markets. (search for similar items in EconPapers)
JEL-codes: F21 F23 G34 L24 L60 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2015-06
New Economics Papers: this item is included in nep-cfn and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r646.pdf

Related works:
Working Paper: Liquidity-Driven FDI (2015)
Working Paper: Liquidity-Driven FDI (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:646

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