Location decisions of non‐bank financial foreign direct investment: Firm‐level evidence from Europe

Abstract

The non-bank financial sector in the euro area has more than doubled in size over the last decade reflecting the substantial growth in shadow banking activities. However, a large proportion of the non-bank financial sector remains unmapped as granular balance sheet information is not available for almost half of the sector. Motivated by these data gaps and employing firm-level data, this paper examines the location decisions of newly incorporated foreign affiliates in the non-bank financial sector across 27 European countries over the period 2004 to 2012. The probability of a country being chosen as the location for a new foreign affiliate is found to be negatively associated with higher corporate tax rates and geographic distance but increases with the size and financial development of the host country. The financial regulatory regime in the host country and gravity related controls such as the home and host country sharing a common legal system, language, border and currency are also found to impact the likelihood of non-bank financial FDI.JEL classification: F23, F65, G23, G32.

Mapping exposures of EU banks to the global shadow banking system

“…Shadow banking entities such as securitisation vehicles are often found to be located in offshore financial centres. We employ the classifications used in Davies and Killeen (2018), who in turn combine the respective categorisations of Lane and Milesi-Ferretti (2011) for small international financial centres and Claessens and van Horen (2015). 15 The source and definition of each of these variables are presented in Table 9 in the Appendix.…”

The impact of taxes on the extensive and intensive margins of FDI

“…( 2018 ), Merlo et al. ( 2016 ), Behrendt and Wamser ( 2018 ) and Davies and Killeen ( 2018 ) find firm-driven heterogeneous tax responses. They do so via sample splits and/or the use of mixed logit.…”

“…( 2012 ), Merlo et al. ( 2016 ), Behrendt and Wamser ( 2018 ), Davies and Killeen ( 2018 ), and Lawless et al. ( 2018 ).…”

Foreign Direct Investment and Consumer Finance Companies: What Are the Determinants?

“…According to R.B. Davies and N. Killeen (2015), non-banking financial institutions are a "diverse range of entities subject to regulatory requirements more permissive than banking financial institutions [5]. The OFI sector includes financial corporations involved in lending such as consumer loans, mortgages, financial leasing (including aircraft leasing), factoring firms, investment vehicles (SPVs), financial corporations (FVCs) engaged in activities securitization, financial holding companies, investment funds and securities and derivatives dealers".…”