Financial constraints and the internationalisation of Irish firms

Abstract

This paper examines whether financial constraints have hindered the expansion of Irish firms internationally since the financial crisis. Recent years have witnessed an increasing number of multinational corporations relocating their headquarters to Ireland, without creating real economic activity, but holding significant foreign investments. As a result, these redomiciled PLCs have inflated Irish aggregate outward direct investment statistics since 2008. Using firm-level data, which provide for the elimination of redomiciled PLCs from the data sample, financial constraints are found to hinder the expansion of Irish firms into foreign markets. This effect is significantly felt by larger firms. Relatively larger Irish firms with greater internal cash flow, and which are highly indebted, are associated with a greater probability of becoming international through establishing foreign affiliates. Moreover, the empirical evidence suggests there is heterogeneity in the influence of financial constraints on firm internationalisation across economic sectors.