Cross-border Investments and Uncertainty: Firm-level Evidence

51 Pages Posted: 28 May 2020

See all articles by Rafael Cezar

Rafael Cezar

Banque de France

Timothee Gigout Magiorani

Banque de France - Economic Study and Research Division

Fabien Tripier

University of Lille I

Date Written: April 2020

Abstract

This paper studies the impact of uncertainty on cross-border investments. We build a data set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average e_ect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.

Keywords: Uncertainty; Asymmetric Uncertainty; FDI Flows; FDI Returns; Volatility; Multinational Firms

JEL Classification: D81; F23; G10; G15

Suggested Citation

Cezar, Rafael and Gigout Magiorani, Timothee and Tripier, Fabien, Cross-border Investments and Uncertainty: Firm-level Evidence (April 2020). Banque de France Working Paper No. 766, 2020, Available at SSRN: https://ssrn.com/abstract=3589118 or http://dx.doi.org/10.2139/ssrn.3589118

Rafael Cezar (Contact Author)

Banque de France ( email )

Paris
France

Timothee Gigout Magiorani

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE

Fabien Tripier

University of Lille I

104, avenue du peuple Belge
Villeneuve d'Ascq Cedex, 59655
France

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