Foreign investors and target firms’ financial structure

Lorenzo Bencivelli and Beniamino Pisicoli

International Economics, 2022, issue 169, 230-251

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.

Keywords: FDIs; Firms' financial structure; Non-bank financing; Investment (search for similar items in EconPapers)
JEL-codes: F15 F21 F23 F61 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2022-q2-169-15

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