Financial Determinants of Foreign Direct Investment

Jens Forssbæck and Lars Oxelheim

No 741, Working Paper Series from Research Institute of Industrial Economics

Abstract: We argue that mainstream FDI theory underplays financial motivations for interna-tional investment, and suggest several possible channels for a distinct cost-of-capital effect on FDI. Using a sample of European firms’ cross-border acquisitions, and controlling for traditional firm-level determinants of FDI, we find strong evidence in favor of a cost-of-equity effect, whereas the effect of debt costs is indeterminate. We further find that financial determinants are more important for firms originating in relatively less financially developed countries and for firms with high knowledge intensity.

Keywords: FDI; Cross-border Acquisitions; Investment-q; Cost of Capital; Cross-listing; Segmentation (search for similar items in EconPapers)
JEL-codes: E22 F21 F23 G30 L23 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2008-04-01
New Economics Papers: this item is included in nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0741

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