Financial constraints, institutions, and foreign ownership

Ron Alquist (1) , Nicolas Berman (2, 3) , Rahul Mukherjee (4) , Linda Tesar (5)

1 AQR Capital Management
2 AMSE - Aix-Marseille Sciences Economiques
3 CEPR - Center for Economic Policy Research
4 Department of Economics, Graduate Institute of International and Development Studies
5 NBER - The National Bureau of Economic Research

We develop a model of cross-border acquisitions in which the foreign acquirer's ownership choice reflects a trade-off between easing the target's credit constraints and the costs of operating in an environment with weak institutions. Data on domestic and foreign acquisitions in emerging markets over the period 1990–2007 support the model predictions. The share of full foreign acquisitions is higher in sectors more reliant on external finance, in countries with lower financial development, and in countries with higher institutional quality. Sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. By contrast, the level of foreign ownership in partial acquisitions is insensitive to institutional factors and depends weakly on financial factors.

Mots clés: Foreign direct investment; Foreign ownership; Mergers and acquisitions; Financial development; Institutional quality

Domaines: Economies et finances

Ron Alquist, Nicolas Berman, Rahul Mukherjee, Linda Tesar. Financial constraints, institutions, and foreign ownership. Journal of International Economics, 2019, 118, pp.63-83. ⟨10.1016/j.jinteco.2019.01.008⟩. ⟨hal-02111499⟩