Liquidity-Driven FDI

Rahul Mukherjee, Linda Tesar and Ron Alquist
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Linda Tesar: University of Michigan

No 415, 2015 Meeting Papers from Society for Economic Dynamics

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.

Date: 2015
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Liquidity-Driven FDI (2015)
Working Paper: Liquidity-Driven FDI (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:415

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