Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit

SMEs, foreign direct investment and financial constraints: The case of Belgium

“…Alfaro, Chanda, Kalemli-Ozcan, and Sayek (2004) find that a lack of well functioning financial markets hinders export activities. Klein, Peek, and Rosengren (2002) show that unequal access to credit by Japanese firms and imperfect capital markets resulted in declining Japanese FDI in the 1990s. Forssbaeck and Oxelheim (2008) provide evidence that financial factors, like access to competitively priced equity or a strong investment grade credit rating, play a significant role for listed firms in explaining cross-border investment.…”

“Following” or “attracting” the customer? Japanese Banking FDI in Europe

“…First, similar to other studies on FDI financing, one cannot measure the actual amount of local borrowing done by the Japanese manufacturing firms in Europe [e.g., Harrison et al, 2004]. However, as suggested by Klein et al [2002], Dufey [1995], andJETRO [1999], much of this local financing is from the Japanese affiliated banks located there. An accurate determination of this would be nice, and would allow researchers to better isolate how banks serve to attract future investment, at what point in their investment sequence banks branch out to serve local customers, and the extent to which previously established manufacturing affiliates turn to non-Japanese banks for investment funding.…”

“…Given the private information associated with the bankYfirm relationship, firms often face high switching costs when considering new lenders to finance their foreign affiliates. The presence of these costs indicates that firms will typically maintain their historic lending ties, and thus changes in banking activity and lending practices may have a significant impact on the borrower's relative access to credit and thus its ability to undertake FDI [Gibson, 1995;Klein et al, 2002].…”

“…For instance, at the height of Japanese global outward FDI in the late 1980s, Japanese banks provided two-thirds of the external funds raised by Japanese corporations. 2 In addition, the downgrade of a bank's long-term credit ranking by a single step resulted in an approximately 30% decrease in the total amount of Japanese FDI into the US by the bank's clients between 1987 and 1994, suggesting the prominent role that Japanese banks play in Japanese outward FDI [Klein et al, 2002]. Finally, a recent study found that nearly 50% of Japanese manufacturing affiliates in Europe financed their operations through European-based, Japanese-affiliated banks [Japanese External Trade Organization (JETRO), 1999].…”

Are strategy-performance relationships contingent on macroeconomic environments? Evidence from Japan’s textile industry

“…Furthermore, large commercial banks should assist fund-raising for internationalization such as direct investment and related activities. Easy access to bank credit has been suggested a critical aspect in affecting Japanese firms' foreign expansion (Klein, Peek, & Rosengren, 2002). Main banks should also contribute to operating companies through various services related to international market transactions like the letter of credits and foreign exchange.…”