The Eclectic Paradigm and the Recognition of Finance-specific Factors

The major proposition of this chapter is that a firm’s financial strength affects its ability to engage in foreign direct investment (FDI). Proactive financial strategies aimed at enhancing a firm’s financial strength are leading indicators of FDI. Such strategies range from pursuing globally recognised accounting and disclosure, listing and selling the firm’s equity on prestigious foreign equity exchanges, to the implementation of crossborder debt/equity swaps. We argue that by having a superior proactive financial strategy a firm is able to minimise its cost of capital and maximise its availability of capital relative to its competitors, both domestic and worldwide. By lowering the discount factor for any investment (both domestic and global) the firm’s likelihood of engaging in FDI would be enhanced. We suggest that finance-specific factors are not merely a by-product of a firm’s competitive strength or weakness, but constitute a distinct set that deserves attention when investment patterns are to be interpreted.