Liquidity-driven FDI

Alquist, Ron ; Mukherjee, Rahul ; Tesar, Linda L.

Ann Arbor : The University of Michigan, 2015 . - 57 p.

Research seminar in international economics discussion paper ; no. 646

Abstract: We develop a model of foreign direct investment (FDI) in which financially liquid foreign firms acquire liquidity-constrained target firms. Using a large dataset of emerging-market acquisitions, we find evidence supporting three central predictions of the model: (i) firms in external finance dependent and intangible sectors are more likely to be targets of foreign acquisitions; (ii) these targets have ownership structures with larger foreign stakes; (iii) these effects are most prominent in countries with low levels of financial development. The regression evidence indicates that liquidity is at least as economically important as technology- or trade-related motives for FDI in emerging-market economies.


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 Record created 2016-10-25, last modified 2016-10-25


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