FDI and Domestic Investment: An Industry-level View
Claudia M. Buch
CEPR. Discussion Paper No. 6464,
2007
Abstract
Previous empirical work on the link between domestic and foreign investment provides mixed results which partly depend on the level of aggregation of the data. We argue that the aggregated home country implications of foreign direct investment (FDI) cannot be gauged using firm-level data. Aggregated data, in turn, miss channels through which domestic and foreign activities interact. Instead, industry-level data provide useful information on the link between domestic and foreign investment. We theoretically show that the effects of FDI on the domestic capital stock depend on the structure of industries and the relative importance of domestic and multinational firms. Our model allows distinguishing intra-sector competition from inter-sector linkage effects. We test the model using data on German FDI. Using panel cointegration methods, we find evidence for a positive long-run impact of FDI on the domestic capital stock and on the stock of inward FDI. Effects of FDI on the domestic capital stock are driven mainly by intra-sector effects. For inward FDI, inter-sector linkages matter as well.
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Bank Lending, Bank Capital Regulation and Efficiency of Corporate Foreign Investment
Diemo Dietrich, Achim Hauck
IWH Discussion Papers,
No. 4,
2007
Abstract
In this paper we study interdependencies between corporate foreign investment and the capital structure of banks. By committing to invest predominantly at home, firms can reduce the credit default risk of their lending banks. Therefore, banks can refinance loans to a larger extent through deposits thereby reducing firms’ effective financing costs. Firms thus have an incentive to allocate resources inefficiently as they then save on financing costs. We argue that imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs. However, the Basel II framework is shown to miss this potential.
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Banks’ Internationalization Strategies: The Role of Bank Capital Regulation
Diemo Dietrich, Uwe Vollmer
IWH Discussion Papers,
No. 18,
2006
Abstract
This paper studies how capital requirements influence a bank’s mode of entry into foreign financial markets. We develop a model of an internationally operating bank that creates and allocates liquidity across countries and argue that the advantage of multinational banking over offering cross-border financial services depends on the benefit and the cost of intimacy with local markets. The benefit is that it allows to create more liquidity. The cost is that it causes inefficiencies in internal capital markets, on which a multinational bank relies to allocate liquidity across countries. Capital requirements affect this trade-off by influencing the degree of inefficiency in internal capital markets.
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Asset Tangibility and Capital Allocation within Multinational Corporations
Diemo Dietrich
IWH Discussion Papers,
No. 4,
2006
Abstract
We investigate capital allocation across a firm's divisions that differ with respect to the degree of asset tangibility. We adopt an incomplete contracting approach where the outcome of potential debt renegotiations depends on the liquidation value of assets. However, with diversity in terms of asset tangibility, liquidation proceeds depend on how funds have been allocated across divisions. As diversity can be traced back to institutional differences between countries, we provide a rationale for multidivisional decision- making in an international context. A main finding is that multinationals may be bound to go to certain countries when financiers cannot control the capital allocation.
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A strategy view on knowledge in the MNE – Integrating Subsidiary Roles and Knowledge Flows
Björn Jindra
East-West Journal of Economics and Business,
1 & 2
2005
Abstract
We assume knowledge inflows endogenous to subsidiary roles. Integrating organisational and knowledge-based views we propose a new subsidiary typology based on MNE integration-subsidiary capability. We hypothesise that both dimensions are positively associated with knowledge inflows into the focal subsidiary. This prediction is tested with data for 425 subsidiaries. The key findings were: (a) the extent for knowledge inflows differs significantly across all subsidiary roles; (c) it diminishes in a anti-clockwise direction starting in the high integration-high capability quadrant of the IC taxonomy; thus (b) both MNE integration and subsidiary capability drive knowledge inflows, although, the balance shifts more towards integration.
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Business Cycles and FDI: Evidence from German Sectoral Data
Claudia M. Buch, A. Lipponer
Review of World Economics,
No. 4,
2005
Abstract
Globalization has affected business cycle developments in OECD countries and has increased activities of firms across national borders. This paper analyzes whether these two developments are linked. We use a new firm-level data set on the foreign activities of German firms to test whether foreign activities are affected by business cycle developments. We aggregate the data by the sector of the reporting firm, the sector of the foreign affiliate, and the host country. Data are annual and cover the period 1989–2002. We find that German outward FDI increases in response to positive cyclical developments abroad and in response to a real depreciation of the domestic currency.
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Exporting Financial Institutions Management via Foreign Direct Investment Mergers and Acquisitions
Allen N. Berger, Claudia M. Buch, G. DeLong
Journal of International Money and Finance,
No. 3,
2004
Abstract
We test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international M&As of financial institutions between 1985 and 2000. The data provide statistically significant support for both theories. We also find evidence that the U.S. has idiosyncratic comparative advantages at both exporting and importing financial institutions management.
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FDI Subsidiaries and Industrial Integration of Central Europe: Conceptual and Empirical Results
Boris Majcen, Slavo Radosevic, Matija Rojec
IWH Discussion Papers,
No. 177,
2003
Abstract
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Corporate Social Responsibility and Profit Shifting
Iftekhar Hasan, Panagiotis I. Karavitis, Pantelis Kazakis, Woon Sau Leung
European Accounting Review,
2099
Abstract
This paper examines the relation between corporate social responsibility (CSR) performance and tax–motivated income shifting. Using a profit–shifting measure estimated from multinational enterprises (MNEs) data, we find that parent firms with higher CSR scores shift significantly more profits to their low-tax foreign subsidiaries. Overall, our evidence suggests that MNEs engaging in CSR activities acquire legitimacy and moral capital that temper negative responses by stakeholders and thus have greater scope and chance to engage in unethical profit-shifting activities, consistent with the legitimacy theory.
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