Testing the fire-sale FDI hypothesis for the European financial crisis

Utz Weitzel* (Corresponding Author), Gerhard Kling, Dirk Gerritsen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)


Using a panel of corporate transactions in 27 EU countries from 1999 to 2012, we investigate the impact of the financial crisis on the market for corporate assets. In particular, we test the ‘fire-sale FDI’ hypothesis by analyzing the number of cross-border transactions, the price of corporate assets and the impact of credit and macroeconomic conditions. According to the fire-sale FDI hypothesis, countries affected by a crisis attract foreign buyers selling assets at a discount. We find a dampening effect of the crisis on cross-border transactions in all EU countries. Although countries with higher sovereign default risk and lower economic demand attracted more foreign buyers in the crisis, lower domestic credit is associated with less cross-border transactions. Corporate assets in crisis countries are cheaper, particularly if domestic credit is low; however, these findings are not limited to the crisis period. This pattern is strikingly different from the East Asian and Latin American financial crises. Overall, we find little evidence for ‘fire-sale FDI’ suggesting an integrated European market without significant frictions.
Original languageEnglish
Pages (from-to)211-234
Number of pages24
JournalJournal of International Money and Finance
Issue numberPart B
Early online date24 Apr 2014
Publication statusPublished - Dec 2014

Bibliographical note

We thank an anonymous reviewer, the editor and the participants of the International Conference on the Global Financial Crisis for their helpful comments


  • Acquisition
  • European Union
  • Financial Crisis
  • Foreign Direct investment
  • Cross-border
  • Fire-sale


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