Foreign Ties That Bind: Cross-Border Firm Expansions and Fund Portfolio Allocation Around the World

Abstract We investigate whether international operations enhance information links between firms and foreign investors. Exploiting novel subsidiary-level data within-location variations, we show that, after expanding into another country, a firm attracts greater investment allocation from funds that country than other funds. This increase is economically significant, equivalent to one-fifth of the average weight in country-specific portfolio. The observed effect cannot be attributed funds’ influence, persists even when are already familiar with firm, helps them generate superior risk-adjusted returns. Our results suggest firms’ cross-border economic activities contribute global financial interconnectedness.