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Journal of Financial and Quantitative Analysis Vol. 58 No. 4 2023

Foreign Ties That Bind: Cross-Border Firm Expansions and Fund Portfolio Allocation Around the World

Fariborz Moshirian1,2,3,4,5,6,7,8,9,10,11,12,13,14,15; Peter K. Pham1,2,3,4,5,6,7,8,9,10,11,12,13,14,15; Shu Tian1,2,3,4,5,6,7,8,9,10,11,12,13,14,15; Eliza Wu2

1 Australian National University · 2 The University of Sydney · 3 University of Auckland · 4 City, University of London · 5 Asian Development Bank Institute · 6 La Trobe University · 7 University of Zurich · 8 Fudan University · 9 Victoria University of Wellington · 10 Asian Development Bank · 11 Institute of Finance and Banking · 12 American Finance Association · 13 Massey University · 14 Monash University · 15 The University of Adelaide

open access

Abstract

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.

DOI
10.1017/s0022109022000941
Volume
58
Issue
4
Pages
1768-1807
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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