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

We investigate whether international operations enhance information links between firms and foreign investors. Exploiting novel subsidiary-level data and within-firm-location variations, we show that, after a firm expands into a new market, it attracts a larger increase in portfolio allocation from destination-country funds than from other foreign funds. This effect is economically significant, equivalent to one-fifth of the average firm weight in funds' portfolios, and is not driven by funds' influence. It is also persistent, increases with pre-expansion information gaps, and generates superior risk-adjusted returns for destination-country funds. Our results suggest that firms' cross-border economic activities contribute to global financial interconnectedness. Internet appendix available at: "https://ssrn.com/abstract=3209972" https://ssrn.com/abstract=3209972