Role of Industry Factors in Financing the Outward Foreign Direct Investment by Indian Multinational Enterprises

Abstract

The article investigates the impact of industry environment of the home country (in which Indian parent firms operate) on financing their outward foreign direct investment (OFDI) for the period 2008–2009 to 2013–2014. Due to difficulty in empirically examining the flows within a multinational system there exists scant literature in this area. By employing random effects probit model we find that size and growth rate of the industry have important implications for OFDI financing by parent firm. Second, by including time effects, uniqueness of the industry to which the parent firm belongs significantly shapes the OFDI financing. Third, parent firms are found to significantly rely on their own strengths than industry environment in financing the OFDI, lending support to the ownership advantage theory of international business. Finally, parent firm is found to follow industry norms in financing their OFDI. The study has implications for supply-side factors determining capital structure of firm and internal capital available to a multinational.