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Cross-border investments and uncertainty: Firm-level evidence

Rafael Cezar, Timothee Gigout and Fabien Tripier
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Fabien Tripier: EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay

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Abstract: This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions. © 2020

Keywords: Uncertainty; Multinational firms; Asymmetric uncertainty; FDI flows; FDI returns; Volatility (search for similar items in EconPapers)
Date: 2020-11
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Published in Journal of International Money and Finance, Elsevier, 2020, 108, ⟨10.1016/j.jimonfin.2020.102159⟩

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Journal Article: Cross-border investments and uncertainty: Firm-level evidence (2020) Downloads
Working Paper: Cross-border Investments and Uncertainty: Firm-level Evidence (2020) Downloads
Working Paper: Cross-border Investments and Uncertainty Firm-level Evidence (2020) Downloads
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DOI: 10.1016/j.jimonfin.2020.102159

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