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Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

Subash Sasidharan () and M. Padmaja
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M. Padmaja: SRM Institute of Science and Technology, Chennai, India. E-mail: padmaja251988@gmail.com Author email: padmaja251988@gmail.com

Asian Development Review, 2018, vol. 35, issue 1, 108-132

Abstract: This study examines the role of financing constraints in explaining outward foreign direct investment (FDI) using unique firm-level panel data on Indian manufacturing during the period 2007–2014. We consider the role of both internal and external finance, and employ instrumental variable probit and Tobit models to examine financing constraints in outward FDI decisions and intensity. We find that internal finance impacts the likelihood of outward FDI. Further, using count data models, we examine financing constraints in determining strategies regarding a firm's number of affiliates abroad. Our findings reveal that firms with greater cash flows and liquidity are likely to have more foreign affiliates.

Keywords: financing constraints; outward FDI; total factor productivity (search for similar items in EconPapers)
JEL-codes: F14 F21 F23 (search for similar items in EconPapers)
Date: 2018
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