Abstract

http://ssrn.com/abstract=1972796
 
 

References (89)



 
 

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Multinationals as Arbitrageurs: The Effect of Valuations on Foreign Direct Investment


Malcolm P. Baker


Harvard Business School; National Bureau of Economic Research (NBER)

C. Fritz Foley


affiliation not provided to SSRN

Jeffrey Wurgler


NYU Stern School of Business; National Bureau of Economic Research (NBER)

December 2011

NYU Working Paper No. 2451/31358
NYU Working Paper No. FIN-11-025

Abstract:     
Empirical evidence of imperfect integration across world capital markets suggests a role for cross-border arbitrage by multinationals. Consistent with multinational arbitrage as a determinant of foreign direct investment (FDI) patterns, we find that FDI flows increase sharply with source-country stock market valuations—particularly the component of valuations that is predicted to revert the next year, and particularly in the presence of capital account restrictions that limit other mechanisms of cross-country arbitrage. The results suggest the existence of a cheap financial capital channel in which FDI flows reflect, in part, the use of relatively low-cost capital available to overvalued parents in the source country. (JEL F15, F21, F23, G31, G34)

Number of Pages in PDF File: 33

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Date posted: December 15, 2011  

Suggested Citation

Baker, Malcolm P. and Foley, C. Fritz and Wurgler, Jeffrey, Multinationals as Arbitrageurs: The Effect of Valuations on Foreign Direct Investment (December 2011). NYU Working Paper No. 2451/31358; NYU Working Paper No. FIN-11-025. Available at SSRN: http://ssrn.com/abstract=1972796

Contact Information

Malcolm P. Baker
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6566 (Phone)
HOME PAGE: http://www.people.hbs.edu/mbaker
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
C. Fritz Foley
affiliation not provided to SSRN
No Address Available
Jeffrey A. Wurgler (Contact Author)
NYU Stern School of Business ( email )
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)
HOME PAGE: http://www.stern.nyu.edu/~jwurgler/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  89
Citations:  28

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