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

We investigate whether cross-border expansions help firms bridge their information gaps with foreign investors. Exploiting novel subsidiary-level data and within-firm variations, we document that, after establishing new foreign operations, firms attract larger portfolio allocations from destination-country funds. Other foreign and domestic funds are less responsive to such expansions. This effect is economically significant, equivalent to one-fifth of the average firm weight in funds' portfolios, and not a result of funds influencing firms. It is also persistent, increases with pre-expansion information gaps, and generates superior risk-adjusted returns for destination-country funds. Our results suggest that cross-border economic activities strengthen global financial interconnectedness. Internet appendix available at: https://ssrn.com/abstract=3209972