publication . Preprint . 2005

An Information-Based Trade Off between Foreign Direct Investment and Foreign Portfolio Investment

Itay Goldstein; Assaf Razin;
Open Access
  • Published: 01 Nov 2005
Abstract
The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI).The model describes an information-based trade off between direct investments and portfolio investments. Direct investors are more informed about the fundamentals of their projects. This information enables them to manage their projects more efficiently. However, it also creates an asymmetric-information problem in case they need to sell their projects prematurely, and reduces the price they can get in that case. As a result, investors, who know they are more likely to get a liquidity shock that forces them to sell early, are more likely to choose portfolio inv...
Subjects
free text keywords: jel:F3, jel:G3
22 references, page 1 of 2

[12] Frankel, J. A. and A. K. Rose, 1996, ”Currency Crashes in Emerging Markets: An Empirical Treatment,” Journal of International Economics, 41, 351-366.

[13] Froot, K. A. and J. C. Stein, 1991, ”Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach,” Quarterly Journal of Economics, 106, 1191-1217. [OpenAIRE]

[15] Hart, O., 2001, ”Financial Contracting,” Journal of Economic Literature, 34, 1079-1100.

[16] Hennart, J., D. Kim and M. Zeng, 1998, “The Impact of Joint Venture Status on the Longevity of Japanese Stakes in U.S. Manufacturing Affiliates,” Organization Science, 9, 382-395.

[17] Hertzel, M. and R. Smith, 1993, “Market Discounts and Shareholder Gains for Placing Equity Privately,” Journal of Finance, 48, 459-485. [OpenAIRE]

[18] Holthausen, R. W., R. W. Leftwich and D. Mayers, 1990, “Large-Block Transactions, the Speed of Response, and Temporary and Permanent Stock-Price Effects,” Journal of Financial Economics, 26, 71-95.

[19] Jensen, M., 1986, "The Agency Costs of Free Cash Flow: Corporate Finance and Takeovers," American Economic Review, 76, 323-330.

[20] Kahn, C. and A. Winton, 1998, ”Ownership Structure, Speculation, and Shareholder Intervention,” Journal of Finance, 53, 99-129.

[21] Klein, M. W. and E. S. Rosengren, 1994, ”The Real Exchange Rate and Foreign Direct Investment in the United States,” Journal of International Economics, 36, 373-389.

[22] Klein, M. W., J. Peek and E. S. Rosengren, 2002, ”Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit,” American Economic Review, 92, 664-682.

[23] Korajczyk, R. A., D. J. Lucas and R. L. McDonald, 1991, “The Effect of Information Releases on the Pricing and Timing of Equity Issues,” Review of Financial Studies, 4, 685-708. [OpenAIRE]

[24] La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. W. Vishny, 1998, “Law and Finance,” Journal of Political Economy, 106, 1113-1155.

[25] Lipsey, R. E., 1999, ”The Role of Foreign Direct Investment in International Capital Flows,” NBER Working Paper, 7094.

[26] Lipsey, R. E., 2001, ”Foreign Direct Investors in Three Financial Crises,” NBER Working Paper, 8084.

[27] Masulis, R. W. and A. N. Korwar, 1986, “Seasoned Equity Offerings: An Empirical Investigation,” Journal of Financial Economics, 15, 91-118. [OpenAIRE]

22 references, page 1 of 2
Powered by OpenAIRE Open Research Graph
Any information missing or wrong?Report an Issue