Nonlinearities and a Pecking Order in Cross-border Investment

Sara B. Holland, Sergei Sarkissian, Michael Schill and Francis E. Warnock

No 29432, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Nonlinearities can arise in international investment factors because of a pecking order in barriers. When direct barriers are severe, improvements in governance factors such as rule of law and expropriation risk can increase investment. Only when severe barriers are ameliorated can factors such as firm-specific information, transaction costs and hedging motives become more important. Evidence from unconditional quantile regressions provides support for a pecking order hypothesis, as we find that investment factors vary across the distribution. Specifically, our empirical results indicate that access to basic information is important everywhere, governance and familiarity matter where barriers are high, roles for information and hedging motives become more apparent where barriers are moderate, and where there are no barriers small improvements in governance have little effect on investment. Going forward, analysis should incorporate nonlinearities inherent in cross-border barriers and investment.

JEL-codes: F15 F21 F3 G15 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-int and nep-opm
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Published as Sara B. Holland & Sergei Sarkissian & Michael J. Schill & Francis E. Warnock, 2024. "Nonlinearities and a Pecking Order in Cross-border Investment," Journal of Banking & Finance, .

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