Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/122098 
Year of Publication: 
2014
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. 17/2014
Publisher: 
Graduate Institute of International and Development Studies, Geneva
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.
Subjects: 
foreign direct investment
cross-border mergers and acquisitions
financial development
external finance dependence
asset tangibility
emerging markets
JEL: 
F21
F23
G34
L24
L60
Document Type: 
Working Paper

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