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Financial Constraints, Institutions, and Foreign Ownership

Ron Alquist (), Nicolas Berman, Rahul Mukherjee and Linda Tesar
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Nicolas Berman: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR
Rahul Mukherjee: Department of Economics, Graduate Institute of International and Development Studies
Linda Tesar: Department of Economics, University of Michigan, NBER - National Bureau of Economic Research - National Bureau of Economic Research

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Abstract: We develop a model of cross-border acquisitions in which the foreign acquirer's ownership choice reflects a trade-off between easing the target's credit constraints and the costs of operating in an environment with weak institutions. Data on domestic and foreign acquisitions in emerging markets over the period 1990-2007 support the model predictions. The share of full foreign acquisitions is higher in sectors more reliant on external finance, in countries with lower financial development, and in countries with higher institutional quality. Sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. By contrast, the level of foreign ownership in partial acquisitions is insensitive to institutional factors and depends weakly on financial factors.

Keywords: foreign direct investment; foreign ownership; mergers and acquisitions; financial development; institutional quality (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-int
Date: 2018-12
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01945577
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Working Paper: Financial Constraints, Institutions, and Foreign Ownership (2018) Downloads
Working Paper: Financial constraints, institutions, and foreign ownership (2018) Downloads
Working Paper: Financial Constraints, Institutions, and Foreign Ownership (2018) Downloads
Working Paper: Financial Constraints, Institutions, and Foreign Ownership (2018) Downloads
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