Finance-Specific Factors as Drivers of Cross-Border Investment - An OLI Perspective

International Business Review, Forthcoming

IFN Working Paper No. 767

35 Pages Posted: 26 Sep 2008

See all articles by Jens Forssbæck

Jens Forssbæck

Lund University - Department of Economics

Lars Oxelheim

Research Institute of Industrial Economics (IFN); University of Agder; Knut Wicksell Center for Financial Studies, Lund University

Date Written: September 26, 2008

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 Classification: E22, F21, F23, L23

Suggested Citation

Forssbaeck, Jens and Oxelheim, Lars, Finance-Specific Factors as Drivers of Cross-Border Investment - An OLI Perspective (September 26, 2008). International Business Review, Forthcoming , IFN Working Paper No. 767, Available at SSRN: https://ssrn.com/abstract=1274158

Jens Forssbaeck

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Lars Oxelheim (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
+46 8 665 4527 (Phone)
+46 8 665 4599 (Fax)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

Knut Wicksell Center for Financial Studies, Lund University ( email )

P.O.Box 7080
S-220 07 Lund
Sweden
+46462228744 (Phone)

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