Liquidity-driven FDI

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.


Publication infos:
Ann Arbor, The University of Michigan, 2015
Publication year:
2015
Number of pages:
57 p.
Collection:
Research seminar in international economics discussion paper ; no. 646



 Record created 2016-10-25, last modified 2018-01-28

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