FDI as an Outcome of the Market for Corporate Control: Theory and Evidence

Head, Keith; Ries, John C.

doi:10.2139/ssrn.926133

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FDI as an Outcome of the Market for Corporate Control: Theory and Evidence

Sauder School of Business Working Paper

37 Pages Posted: 24 Aug 2006

See all articles by Keith Head

Keith Head

University of British Columbia (UBC) - Division of Strategy and Business Economics

John C. Ries

University of British Columbia (UBC) - SFU-UBC Centre for the Study of Government and Business; University of British Columbia (UBC) - Sauder School of Business

Date Written: July 26, 2006

Abstract

Much foreign direct investment (FDI) takes the form of mergers and acquisitions (M&A). It is commonplace in finance to view acquisitions as manifestations of the market for corporate control. Following on that insight we propose a model of FDI in which headquarters bid to control overseas assets. We derive an equation for bilateral FDI stocks that resembles the recently developed fixed effects approach to modelling bilateral trade flows. We estimate the model and use its parameters to construct benchmarks for evaluating multilateral inward and outward FDI.

Keywords: foreign direct investment, mergers and acquisitions, gravity, benchmark

JEL Classification: F21, F22, G34

Suggested Citation: Suggested Citation

Head, Keith and Ries, John C. and Ries, John C., FDI as an Outcome of the Market for Corporate Control: Theory and Evidence (July 26, 2006). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=926133 or http://dx.doi.org/10.2139/ssrn.926133