Multinational Firms, FDI Flows and Imperfect Capital Markets

By Pol Antràs, Mihir A. Desai. 2009

327 citations recorded by the source corpus.

This paper examines how costly financial contracting and weak investor protection influence the cross-border operational, financing and investment decisions of firms. We develop a model in which product developers have a comparative advantage in monitoring the deployment of their technology abroad. The paper demonstrates that when firms want to exploit technologies abroad, multinational firm (MNC) activity and foreign direct investment (FDI) flows arise endogenously when monitoring is nonverifiable and financial frictions exist. The mechanism generating MNC activity is not the risk of technological expropriation by local partners but the demands of external funders who require MNC participation to ensure value maximization by local entrepreneurs. The model demonstrates that weak investor protections limit the scale of multinational firm activity, increase the reliance on FDI flows and alter the decision to deploy technology through FDI as opposed to arm's length licensing. Several distinctive predictions for the impact of weak investor protection on MNC activity and FDI flows are tested and confirmed using firm-level data.

Subfields: Accounting, Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/d5590af58f2ace0bd58a9121c2e502428c8edb76

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Citations in the corpus

Cross-border banking, credit access, and the financial crisis (2012, background): “10While it is also important to control for firm foreign ownership (see Antras, Desai, and Foley (2009)), this information is only available in the 2008 BEEPS.”
International Trade, Multinational Activity, and Corporate Finance (2015, unknown): “Antràs et al. (2009) analyze how the financial response to a managerial moral hazard problem can explain the emergence ofmultinational firms.”
Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis (2012, methodology): “Specically, we interact countries initial physical and human capital per worker (log(K=L)i and log(H=L)i) respectively with measures of industry factor intensities (log(k=l)k and (24)This is consistent with the theory and evidence in Manova (2008a), Antràs et al. (2009) and Manova, Wei and Zhang (”
How Firms Export: Processing vs. Ordinary Trade with Financial Frictions (2016, unknown): “…work on the use of trade credit in cross-border transactions (Antràs and Foley, 2015; Demir and Javorcik, 2014) and on the effect of financial frictions onmultinationals' decision to offshore intra-firm or at arm's length (Antràs et al., 2009; Manova et al., 2015; Javorcik and Spatareanu, 2009).”
Information Environment and the Investment Decisions of Multinational Corporations (2013, background): “…examine how firms deal with agency frictions when operating across borders and find that MNCs adjust their ownership structure, compensation contracts, and organizational design to mitigate these frictions (Zaheer 1995; Smith 2001; Desai et al. 2004; Antras et al. 2009; Siegel and Larson 2009).”
Firm Exports and Multinational Activity Under Credit Constraints (2011, unknown): “alleviate the latter’s liquidity constraint and ensure that production takes place (Antràs et al., 2009).”
Credit Constraints, Heterogeneous Firms and International Trade (2013, unknown): “They also shape multinational firm activity and cross-border capital flows (Chor et al., 2007; Antràs et al., 2009; Antràs and Caballero, 2009).”
The Effects of Financial Development on Foreign Direct Investment (2014, background): “…external financing required by firms to engage in FDI and/or conduct their foreign activities is raised in the destination country.17 It may also have a negative FDI-specific disintegration effect if it encourages greater substitution of foreign outsourcing for integration (Antras et al., 2009).”
FDI Flows to Sub-Saharan Africa: The Impact of Finance, Institutions, and Natural Resource Endowment (2012, background): “Along this line, Antràs et al. (2007) argue that weak financial institutions decrease the scale of multinational firm activity by simultaneously increasing the reliance on capital flows from the parent.”