Fire-Sale FDI or Business as Usual?

Ron Alquist, Rahul Mukherjee and Linda L. Tesar
Additional contact information
Linda L. Tesar: University of Michigan and NBER

No 645, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: Motivated by a set of stylized facts, we develop a model of cross-border mergers and acquisitions (M&As) to study foreign direct investment (FDI) in emerging markets. We compare acquisitions undertaken during financial crises Ð so called fire-sale FDI Ð with acquisitions made during non-crisis periods to examine whether the outcomes differ in the ways predicted by the model. Foreign acquisitions are driven by two sources of value creation. First, acquisitions by a foreign firm relax the target's credit constraint (i.e., a liquidity motive). Second, acquisitions exploit operational synergies between the target and the acquirer (i.e., a synergistic motive). During crises credit conditions tighten in the target economy and the liquidity motive dominates. The model predicts that during crisis relative to non-crisis periods, (1) the likelihood of foreign acquisitions is higher; (2) the proportion of foreign acquisitions in the same industry is lower; (3) the average size of ownership stakes is lower; and (4) the duration of acquisitions is lower (i.e., acquisition stakes are more likely to be flipped). We find support for (1) but not for the other three predictions. The results thus suggest that foreign acquisitions in emerging markets do not differ in these important ways between crisis and normal periods.

Keywords: Fire sales; foreign direct investment; cross-border mergers and acquisitions; nancial crises; flipping (search for similar items in EconPapers)
JEL-codes: F21 G01 G34 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2015-06
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r645.pdf

Related works:
Journal Article: Fire-sale FDI or business as usual? (2016)
Working Paper: Fire-Sale FDI or Business as Usual? (2013)
Working Paper: Fire-sale FDI or Business as Usual? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:645

Access Statistics for this paper

More papers in Working Papers from Research Seminar in International Economics, University of Michigan Contact information at EDIRC.
Bibliographic data for series maintained by FSPP Webmaster ().