Alquist, Ron. <br/><br/>
Financial Constraints, Institutions, and Foreign Ownership / 
Ron Alquist, Nicolas Berman, Rahul Mukherjee, Linda Tesar. 
 - Cambridge, Mass.  National Bureau of Economic Research  2018. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w24241 .
 - Working Paper Series (National Bureau of Economic Research)  no. w24241. .
<br/><br/> January 2018. 
<br/><br/> This paper examines how external finance dependence, financial development, and institutions influence brownfield foreign direct investment (FDI). We develop a model of cross-border acquisitions in which the foreign acquirer's choice of ownership structure reflects a trade-off between easing target credit constraints and the costs of operating in an environment of low institutional quality. Using a dataset of cross-border acquisitions in emerging markets, we find evidence supporting the central predictions of the model that: (i) a foreign firm is more likely to fully acquire a target firm in sectors that are more reliant on external finance, or in countries with lower financial development/higher institutional quality; (ii) the level of foreign ownership in partially foreign-owned firms is insensitive to institutional factors and depends weakly on financial factors; (iii) the share of foreign acquisitions in all acquisition activity is also higher in external finance dependent sectors, or financially under-developed/high institutional quality countries; and (iv) sectoral external finance dependence accentuates the effect of country-level financial development and institutional quality. The theory and empirical evidence provide insight into the interaction between the financial, institutional and technological determinants of North-South brown field FDI. 
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