Foreign investors and target firms’ financial structure: cavalry or locusts?

Lorenzo Bencivelli and Beniamino Pisicoli

No 1327, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that 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 the 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: 2021-04
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-eur, nep-fdg and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1327_21

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