Fire Sale FDI

Hyun Song Shin, Viral Acharya and Tanju Yorulmazer
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Tanju Yorulmazer: Federal Reserve Bank of New York

Korean Economic Review, 2011, vol. 27, 163-202

Abstract: Some financial crises are characterized by the simultaneous outflow of foreign portfolio investment and an inflow of foreign direct investment (FDI) in which foreign investors take controlling stakes in distressed firms. We explore an agency-theoretic framework for this phenomenon. Transfer of control that overcomes agency problems are made possible during crises, but, at the same time, efficient owners (e.g. other domestic firms) face financing constraints. The result is a transfer of ownership to foreign firms, including inefficient ones, at fire sale prices. These stakes are subsequently re-sold, or “flipped†back to local investors once the crisis abates. The theory finds strong empirical support during the Asian crisis.

Keywords: Flight; FDI Flows; Foreign Takeovers; Flipping (search for similar items in EconPapers)
JEL-codes: D61 E58 G21 G28 G32 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Fire-sale FDI (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:kea:keappr:ker-20111231-27-2-01

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