Foreign Direct Investment in Emerging Markets: Bondholders' Perspective

Chyi-Lun Chiou, Mao-Wei Hung and Pei-Gi Shu

Emerging Markets Finance and Trade, 2013, vol. 49, issue S4, 5-16

Abstract: This study investigates the influence of Taiwan outward foreign direct investment (FDI) and location choices on yield spread. Evidence shows the amount of FDI located in developed economies is curvilinearly correlated with yield spread, consistent with the upstream-downstream argument. However, owing to cultural similarity and geographic proximity, the negative relationship between FDI and yield spread is found to be stronger in FDI in China than in FDI in the developed economies. Referring to information asymmetry we explore the impact of the choice to locate FDI in China on yield spread. Companies investing more in less-developed regions have higher yield spreads; however, this relationship is less pronounced for transparent companies.

Keywords: at-issue yield spread; foreign direct investment (FDI); information asymmetry; location choice (search for similar items in EconPapers)
Date: 2013
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