Foreign direct investment and financial markets influences: Results from the United States

This paper investigates the linkages among Foreign Direct Investment (FDI-greenfield and mergers and acquisitions (M&A)) decisions and equity market returns and volatilities. The central premise is that FDI decisions by Multinational Enterprises (MNE) are influenced, among other factors, by risk and uncertainty indicated by equity market returns and volatilities in the destination (host) countries. This is because of the events on the stock markets in general, and their volatilities, in particular, signal the vitality of the investment climate of the target country. Including capital market variables among the determinants of FDI is important for assessing the cost of capital and for evaluating direct investment and asset allocation decisions.Secondary time-series data (quarterly) were used on incoming US FDI from 1994 to 2018 along with data on independent variables such as exchange rates, inflation, market size, equity market returns, and equity market volatilities. Thus, the paper endeavors to contribute to the International Business literature by highlighting the role played of equity returns and volatilities in FDI decisions and therewith attempts to integrate finance (capital markets) with International Business/Strategic Decision making. Several different regression specifications (OLS, Fixed, and random-effects and VAR) were utilized to analyze the data, and capital market variables (stock returns and volatilities) were found to influence the location of production facilities by a multinational enterprise (MNE). In other words, the share of production capacity optimally located abroad, as well as M&A decisions, are influenced by capital market returns and volatilities.     

Country risk and stock market volatility,predictability, and diversification in the Middle East and Africa

With globalization, an understanding of country risk (political risk (PR), financial risk (FR), and economic risk (ER)) and its impact on stock market return volatility and predictability is important for evaluating direct investment and country selection decisions in globally and regionally diversified portfolios. This paper examines these issues in the context of the Middle East and Africa (MEAF) and analyzes 10 stock markets in the region over the period 1984–1999. After examining volatility and predictability, this paper explains how portfolios of stocks can be formed from these countries in order to achieve mean–variance efficient portfolios. This paper generally finds that country political, financial and economic risks significantly determine stock volatility and predictability. The diversification exercise shows that an international investor can still benefit by diversifying into the stock markets of Middle East and African countries.     

Foreign direct investment,political conflict and co-operation: The asymmetric response hypothesis

Previous empirical research has demonstrated that political factors do affect the foreign direct investment decisions of multinational enterprises. This study explores the nature of this relationship in more depth. Specifically, it examines the extent to which investors response to political conflict and co-operation is asymmetric, i.e. investors respond differently depending on whether the political conflict or cooperation is increasing or decreasing. The asymmetric response hypothesis is tested through regression analysis of pooled time-series (13 years) and cross-sectional (62 countries) data on Japanese investors. The study finds evidence of asymmetry for intra-nation conflict and co-operation but not for inter-nation conflict and co-operation.     

Political culture and foreign direct investment: The case of Italy

Does the political culture of an area have any impact on the foreign direct investment (FDI) decisions of multinational corporations (MNCs)? This question is difficult to address empirically, as locations differ in many dimensions. We therefore address this question by examining MNC investment location decisions with regard to different regions within a single country. The country we examine is Italy, which exhibits one of the highest levels of variation with regard to the political culture of its geographical regions. We find that political culture as represented by the pattern of support for political parties at different points on the political spectrum has a significant impact on the MNC investment location decision. Thus, in choosing between locations on a short list, where economic and financial location factors are roughly similar, political culture can have a determining influence. In the case of Italy, a Center-right orientation is conducive to MNC FDI, while a Center-left orientation is not. A Far-left orientation is found to have a very negative effect on FDI.     

An Analysis of the Correlates,of US Foreign Direct Investment in Latin America

Abstract

Utilizing the most recent data available from a variety of sources, a spreadsheet has been constructed that displays statistical data for nineteen Latin American nations. The compilation of this data array of itself makes an important contribution to the literature. Using step-wise regression, the relative contribution of market related, demographic, cultural, and political variables to US Foreign Direct Investment (FDI) locational decisions are analyzed. The resulting parsimonious model is subsequently validated using 1993 data. The results indicate that the FDI decision is complicated, containing variables of a political, market, and social nature.     

Global Market Segmentation and Patterns in Stock Market Reaction to US Earnings Announcements: Further Evidence

The purpose of this study is to investigate why the information content of US earnings announcements of non‐US firms cross‐listing in the US varies with the degree of capital market segmentation in the cross‐listing firms' countries of domicile. My evidence shows that indirect barriers to investing (i.e., accounting rules and liquidity differences) rather than direct investment barriers (i.e., investment restrictions) mainly account for this difference. After controlling for the level of accounting disclosure in a firm's country of domicile, I do not observe a systematic difference in the size of market's reaction to earnings announcements depending on the degree of market segmentation in the firm's country of domicile. This study contributes to the literature by providing evidence that accounting disclosure plays an important role in the integration of global capital markets.     

The impact of the foreign corrupt practices act on us exports

In 1977 the Foreign Corrupt Practices Act (FCPA) was enacted to penalize US firms and their employees for paying bribes to foreign government officials. If bribe payments influence the awarding of contracts and the FCPA regulation differentially affects US exporters compared to foreign competitors, then US exporters' bribe-paying ability and market share would be expected to decline. This study provides empirical evidence that the FCPA had a negative effect on US exports to non-Latin American countries but not to bribery prone ones in Latin America.     

谈发达国家的对外直接投资

伴随着全球经济一体化和投资自由化程度的进一步加深,对外直接投资的深度和广度不断增加,而且长期以来发达国家在这一领域一直占据了主导地位。本文通过分析发达国家的对外直接投资情况,从中总结我国对外直接投资发展过程中可以学习的经验,希望为我国对外直接投资的发展提供建议。     

President’s Tweets,US-China economic conflict and stock market Volatility: Evidence from China and G5 countries

This study provides empirical evidence that the tweets from US President Donald J. Trump influence the trading decisions of investors worldwide. We examine the effects of Trump’s tweets related to China on stock market volatility in China and the G5 countries. Our results show that Trump’s original tweets related to the US-China economic conflict expand volatility in stock markets worldwide, and the US-China trade friction intensifies this effect. Furthermore, Trump’s tweets with different sentiments have different impacts on the returns of global stock markets. Our findings confirm that international investors may make their investment decisions based on information conveyed in these tweets.     

Foreign location decisions by US transnational firms: An empirical study

The paper aims at identifying the variables that are significant in determining the choice of host countries for manufacturing subsidiaries of US transnational firms. The approach that is taken is to relate variables that on the basis on a priori theoretical reasoning influence foreign location decisions, with (a) total market penetration by US firms and (b) the choice these firms make between exporting to their foreign markets and on site manufacturing. Location decisions are viewed as emerging from the interaction of characteristics typical to the industry of the transnational firm and factors specific to potential host countries. Particular attention is devoted to finding out whether locational choices and market shares are interdependent. The sample of observations under investigation consists of the activities of US majority-owned subsidiaries, classified in fourteen industry groupings and operating twenty countries. Sub-samples of countries are also studied. It is found that for the European countries, in particular EEC members, market penetration is dependent on local manufacturing.     

Foreign inflows and economic growth: An emiprical study of the SAARC region

The study examines and highlights the impact of selected foreign inflows (aid, trade, FDI, debt and remittances) on the economic growth of the South Asian Association for Regional Cooperation (SAARC) countries. The existent literature lacks a comprehensive analysis of the SAARC countries as countries like Afghanistan, Bhutan and the Maldives have largely been ignored due to the shorter time periods of available data. The study is empirical in nature and utilizes panel data techniques on macroeconomic data for the period 2008–2015. Foreign aid and foreign direct investment are found to impact economic growth positively. Foreign debt and trade flows are found to adversely affect economic growth. No relationship is established between the flow of remittances and the economic growth of these countries. The obtained results are robust to different proxy variables and the addition of macroeconomic variables. For the first time, the study provides policy implications based on the data of all SAARC countries. The study recommends focusing on increasing the inflows of resources in the form of aid and foreign direct investment (FDI) from the developed world to achieve higher economic growth.     

The Russia–Ukraine conflict and investor psychology in financial markets

This study examines the effect of the Russia–Ukraine conflict on global financial markets and the resulting changes in investor psychology. We have analysed weekly data from January 2021 to March 2023, including indicators such as gross national income, Bitcoin historical price, Standard and Poor 500 index, US consumer price index, US dollar index, and investor psychology index, using a variety of econometric techniques. Our findings reveal a positive and significant correlation between investor psychology and market returns. These results highlight the importance of monitoring investor psychology during times of conflict as it can greatly impact investment decisions in financial markets, providing valuable insights for investors and policymakers.     

The Cartagena Declaration,the Baker Plan,and U.S. bank security returns: An empirical investigation

This paper examines the impact of the Cartagena Declaration by 11 Latin American countries and the Baker Plan for resolving the LDC debt problem on the security returns of major U.S. banks. An event parameter approach is employed to investigate two hypotheses, the new-information and the rational-pricing hypotheses, using daily stock market data. Sample banks are grouped into three portfolios depending on their LDC exposure. The results indicate that bank stock returns adjust quickly to new information. Also, there is rational investor reaction to observed events that were neither borrower- nor lender-induced. Those banks displaying greater exposure to LDC loans were affected in a direct and proportionately greater manner.     

Do MNCs spur financial markets in corrupt host countries?

This study investigates how MNCs can sway the growth of financial markets in the developing countries with prevalent political corruption. Using annual data of panel of 22 developing countries and applying dynamic generalized method of moment (GMM) technique, we find foreign firms can spur financial markets in the developing countries through direct investment. Furthermore, our results indicate the stimulus effect of foreign investment on financial development is stronger in the more corrupt countries.     

Can sustainable investments outperform traditional benchmarks? Evidence from global stock markets

To contribute to overcoming global sustainability challenges, investors have been increasingly interested in making sustainable investments and incorporating environmental, social and governance (ESG) criteria into their portfolio selection decisions and managerial activities. However, these investors and other agents interested in sustainable investment need updated and robust information to support their decision making. We analyzed the performance of several Dow Jones Sustainability Indices (DJSIs) and compared them with their respective market benchmarks from 2013 to 2018. The indices comprise the following regions and countries: the world, the Asia‐Pacific, Europe, emerging markets and the US. The analysis was conducted based on both classic and modern portfolio metrics. The results suggest that sustainable investment performance is still heterogeneous worldwide, but there is a promising opportunity for investors to obtain superior risk‐adjusted returns in certain regions while incorporating sustainable investment practices. The findings are of utmost importance to financial market practitioners, business managers, academics and other stakeholders interested in promoting investments, corporate practices and scientific knowledge to achieve the Sustainable Development Goals (SDGs).     

Foreign direct investment and global sourcing choices of firms in the US

This paper investigates factors affecting the global sourcing choices of firms in the US: (1) US investment abroad; (2) foreign direct investment in the US; (3) wage–productivity ratio; and (4) transaction cost. I found that there is a statistically significant association between the country of sourcing choices and foreign direct investment. Both the wage–productivity ratios and transaction costs are not statistically significant at the conventional significance level, but their regression coefficients show proper signs. The paper also examines the patterns of foreign direct investment among countries and compares transaction costs by income group. Copyright © 2000 John Wiley & Sons, Ltd.     

Risk assessment of China's foreign direct investment in "One Belt,One Road": Taking the green finance as a research perspective

With the active promotion of the "the Belt and Road" initiative, overseas investment has shown a market prospect of explosive growth in various countries and has received continuous attention from scholars at home and abroad. With the proposal of the goal of carbon neutrality in countries and regions along the Belt and Road, green investment has become a new driving force for foreign investment. Based on the theory of quality function deployment (QFD) and the G1 entropy method in fuzzy mathematics, this paper constructs 10 risk indicators of China's foreign investment from the perspective of green from the four levels of economic risk, environmental risk, social and cultural risk and political risk, and studies 61 countries along the line. The results show that the four types of risks have an important impact on China's foreign investment. Therefore, Chinese government and enterprises should strengthen the comprehensive evaluation of the overall situation of the host country when investing. Our research has not only achieved theoretical improvement and practical innovation, but also put forward targeted suggestions for China to strengthen risk prevention and control of investment in countries along the "Belt and Road" from the perspective of green finance.     

环境规制是否抑制了外商直接投资的流入？

基于中国工业企业数据库、中国环境数据库和国泰安城市数据库的匹配数据,采用赫克曼（Heckman）两阶段模型,本文研究了环境规制对外商直接投资（FDI）流入的影响及作用机制。研究结果表明：环境规制对企业的FDI决策和FDI数量均具有显著的负向影响,并且对污染行业企业的负向影响更大、更明显;无论是港澳台投资还是外商投资,环境规制都对其引资决策和引资数量产生了显著的负向影响,并且对外商投资的负向影响更大、更明显;环境规制对私营企业、中西部地区企业、劳动密集型企业、低生产率企业、小规模企业和高融资约束企业的引资行为具有更大、更明显的负向影响;金融危机后,环境规制对FDI的负向影响增强;环境规制通过生产成本效应抑制了FDI的流入,并通过创新激励效应促进了FDI的流入,并且生产成本效应明显大于创新激励效应。 关键词：环境规制FDI流入FDI决策FDI数量赫克曼两阶段模型     

The Dynamics of Humanitarian Aid Decisions

Humanitarian aid can be seen as a political investment motivated by altruism or by economic benefits for the donor. Uncertainty in the returns to this investment may generate hysteresis effects and inertia in aid allocations. I model the allocation decisions of the three largest humanitarian aid donors: the US government, the UK government and the European Commission, finding evidence that allocations depend on both recipient need and donor economic interest. Some donors exhibit more inertia than others, and some are more influenced by the decisions of other donors. Despite being a relatively small donor, the UK is particularly influential.     

The impact of political risk on FDI exit decisions

Do political risks drive exit decisions by multinational companies (MNC)? What mechanisms can protect a multinational subsidiary in a host country that is characterized by weak institutions and high political risks? Using multinational plant-level data for Russia in the period 2000-2016 and applying the Cox proportional hazard model, we find significant effects from elevated host-country political risk when we compare the year of entry to the year of exit. MNCs are particularly sensitive to problems associated with law, order, and social conditions in Russia and the presence of the military in politics in the home country. Institutional similarity does not reduce the hazard of exits, and MNCs from high-risk countries exit less when home-country risk increases. Subsidiaries from countries that have imposed sanctions on Russia are less likely to exit, though sanctions interact with host-country risks, making them more severe. Being large and being part of a greenfield project help subsidiaries to build resistance against host-country political risks. These findings provide empirical evidence that support our conclusions regarding foreign direct investment volatility in countries with high risk.