Liquidity-Driven FDI

Rahul Mukherjee, Linda Tesar () and Ron Alquist

No 17-2014, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: We develop a model of foreign direct investment (FDI) in which financially liquid foreign firms acquire liquidity-constrained target firms. Using a large dataset of emerging-market acquisitions, we find evidence supporting three central predictions of the model: (i) firms in external finance dependent and intangible sectors are more likely to be targets of foreign acquisitions; (ii) these targets have ownership structures with larger foreign stakes; (iii) these effects are most prominent in countries with low levels of financial development. The regression evidence indicates that liquidity is at least as economically important as technology- or trade-related motives for FDI in emerging-market economies.

Keywords: Foreign direct investment; cross-border mergers and acquisitions; financial development; external finance dependence; asset tangibility; emerging markets (search for similar items in EconPapers)
JEL-codes: F21 F23 G34 L24 L60 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2014-12-11, Revised 2014-12-11
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Liquidity-Driven FDI (2015)
Working Paper: Liquidity-Driven FDI (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp17-2014

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