Abstract

http://ssrn.com/abstract=972297
 
 

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Fire-Sale FDI


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Hyun Song Shin


Bank for International Settlements; Princeton University - Department of Economics

Tanju Yorulmazer


Federal Reserve Bank of New York

January 1, 2009

AFA 2008 New Orleans Meetings Paper
EFA 2008 Athens Meetings Paper

Abstract:     
Financial crises are often accompanied by an outflow of foreign portfolio investment and an inflow of foreign direct investment (FDI). We provide an agency-theoretic framework that explains this phenomenon. During crises, agency problems affecting domestic firms are exacerbated, and, in turn, external financing constrained. Transfer of control in the form of direct ownership of failed firms' assets by alternate users can circumvent agency problems, but during crises, efficient owners (e.g. other domestic firms) face similar financing constraints. The result is a transfer of ownership to foreign firms, including inefficient ones, at fire-sale prices. Such fire-sale FDI is associated with a flipping of acquired firms back to domestic owners once the crisis abates. These features of fire-sale FDI find empirical support.

Number of Pages in PDF File: 45

Keywords: Fire sales, Capital flight, FDI flows, Financial crises, Foreign takeovers

JEL Classification: G21, G28, G32, E58, D61

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Date posted: March 20, 2007 ; Last revised: November 11, 2010

Suggested Citation

Acharya, Viral V. and Shin, Hyun Song and Yorulmazer, Tanju, Fire-Sale FDI (January 1, 2009). AFA 2008 New Orleans Meetings Paper; EFA 2008 Athens Meetings Paper. Available at SSRN: http://ssrn.com/abstract=972297 or http://dx.doi.org/10.2139/ssrn.972297

Contact Information

Viral V. Acharya (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Hyun Song Shin
Bank for International Settlements ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

Tanju Yorulmazer
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
HOME PAGE: http://www.ny.frb.org/research/economists/yorulmazer/index.html
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