Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 554: On the Treatment of Finance-Specific Factors Within the OLI Paradigm

Lars Oxelheim (), Trond Randøy () and Arthur Stonehill
Additional contact information
Lars Oxelheim: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Trond Randøy: Agder University College and Agder Reserch Foundation, Postal: P.O. Box 422, N-4604 Kristiansand, Norway
Arthur Stonehill: University of Hawaii at Manoa, Postal: 1777 Ala Moana Boulevard # 504, Honolulu, Hawaii 96815, USA

Abstract: This article argues that the body of foreign direct investment (FDI) literature in general and the ownership, location, and internalization (OLI) paradigm in particular would be enriched if finance-specific factors are explicitly incorporated as drivers of FDI. We suggest that financial strategies involving factors such as debt/equity swaps or equity-listings in foreign equity markets affect the firm’s relative cost and availability of capital, and motivate a firm’s engagement in FDI. Large, research-intensive firms, predominantly resident in the US, UK, Japan or other liquid markets, have in the literature been identified as typical prototypes of MNEs undertaking FDI. These firms are assumed to have no restrictions as regards their ability to achieve a competitive cost and availability of capital, a focus that has made financial capabilities and resources less of an issue in FDI research. Our article mitigates this by emphasizing the relevance of finance-specific proactive strategies for FDI to occur. We generate eight testable hypotheses based on the recognition of finance-specific factors as active drivers of value creating FDI.

Keywords: FDI; Cost of capital; Financial strategies; OLI

JEL-codes: F21; F23; G34; M21

30 pages, April 25, 2001

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