Fire-Sale FDI or Business as Usual?

41 Pages Posted: 1 Mar 2013 Last revised: 22 Jun 2018

See all articles by Ron Alquist

Ron Alquist

AQR Capital Management LLC

Rahul Mukherjee

Graduate Institute of International and Development Studies (IHEID) - Department of Economics

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2013

Abstract

Using a new data set, we examine the characteristics and dynamics of cross-border mergers and acquisitions during emerging-market financial crises, that is, so-called "fire-sale FDI". Our findings shed fresh light on whether the transactions undertaken during crisis periods differ in fundamental ways from those undertaken during more tranquil periods. The increase in foreign acquisitions during crises is mainly driven by non-financial acquirers targeting firms in the same industry rather than foreign financial firms. This increase in acquisition activity in a given industry is unrelated to the industry's dependence on external finance. There is also no evidence of an increase in the size of stakes bought during crises. In terms of the effect of crises on emerging-market mergers and acquisitions, we find little evidence that foreign acquisitions are resold, or "flipped", more frequently than domestic acquisitions. Moreover, flipping rates are uncorrelated with the industry's dependence on external finance. Finally, the probability of being flipped to a domestic buyer does not differ across crisis and non-crisis periods. All of these results are robust to alternative empirical specifications, different definitions of crises, and the inclusion of macroeconomic controls. Contrary to conventional wisdom, fire-sale FDI and asset flipping by foreign firms appear to have been "business as usual".

Suggested Citation

Alquist, Ron and Mukherjee, Rahul and Tesar, Linda L., Fire-Sale FDI or Business as Usual? (February 2013). NBER Working Paper No. w18837. Available at SSRN: https://ssrn.com/abstract=2226809

Ron Alquist (Contact Author)

AQR Capital Management LLC ( email )

Greenwich Plaza
Greenwich, CT NY 06830
United States

Rahul Mukherjee

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-763-2254 (Phone)
734-764-2769 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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