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Foreign Ties That Bind: Cross-Border Firm Expansions and Fund Portfolio Allocation Around the World
Published online by Cambridge University Press: 08 September 2022
Abstract
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We investigate whether international operations enhance information links between firms and foreign investors. Exploiting novel subsidiary-level data and within-location variations, we show that, after expanding into another country, a firm attracts greater investment allocation from funds from that country than from other foreign funds. This increase is economically significant, equivalent to one-fifth of the average firm weight in a country-specific portfolio. The observed effect cannot be attributed to funds’ influence, persists even when funds are already familiar with the firm, and helps them generate superior risk-adjusted returns. Our results suggest that firms’ cross-border economic activities contribute to global financial interconnectedness.
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank Henk Berkman, Charles Calomiris, Sith Chaisurote, Ian Cooper, Bill Francis, Pengjie Gao, Pedro Matos, Phong Ngo, Emilio Osambela, Johan Sulaeman, Le Vu, Shang-Jin Wei, Takeshi Yamada, Hong Yan, and Lu Zheng, other participants at the American Finance Association, Financial Intermediation Research Society, and Northern Finance Association conferences, and other seminar participants at the Australian National University, City University of London, Fudan University, La Trobe University, Massey University, Monash University, University of Adelaide, University of Auckland, University of Sydney, University of Zurich, and Victoria University of Wellington for useful comments on different versions of this article. We are also very grateful for the excellent research support from Zhuo Chen, Stephen Lo, and Bochen Wu, as well as the financial support from the Australian Research Council (ARC). All errors remain our own.
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