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Research Institute of Industrial Economics (IFN) Working Paper Series

No 767:
Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective

Jens Forssbaeck and Lars Oxelheim ()

Abstract: In this paper we empirically test the role of firm-specific financial characteristics as drivers of international investment and production. We hypothesize that financial strength generates advantages that can be exploited through cross-border investment activity. The hypothesis is tested in a series of binary-response models, using a sample of 1379 European non-financial firms’ international acquisitions. Controlling for traditional firm- and target-country-specific FDI determinants within an OLI framework, we find strong evidence that financial factors play a significant role in explaining cross-border investment. We conclude that without explicit consideration of the financial dimension, firms’ FDI decisions cannot be properly understood.

Keywords: FDI; OLI; Cross-border Acquisitions; Cost of Capital; Financial Strategy; Financial Variables; (follow links to similar papers)

JEL-Codes: E22; F21; F23; L23; (follow links to similar papers)

34 pages, September 24, 2008

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This paper is published as:
Forssbaeck, Jens and Lars Oxelheim, (2008), 'Finance-specific Factors as Drivers of Cross-border Investment – An OLI Perspective', International Business Review, Vol. 17, No. 6, pages 630-641

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