Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Jens Forssbaeck and Lars Oxelheim ()
Additional contact information
Jens Forssbaeck: Lund Institute of Economic Research, Postal: Lund, Sweden, and, Copenhagen Business School, Copenhagen, Denmark
Lars Oxelheim: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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

JEL-codes: E22; F21; F23; L23

34 pages, September 24, 2008

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