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Partnerships, Buy‐Out Options and Investment in Emerging Markets
Author(s) -
Møllgaard H. Peter,
Overgaard Per Baltzer
Publication year - 1999
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00178
Subject(s) - profitability index , economics , investment (military) , emerging markets , foreign direct investment , foreign portfolio investment , monetary economics , business , market economy , return on investment , open ended investment company , microeconomics , finance , macroeconomics , production (economics) , politics , political science , law
Asymmetric information and fear of acquiring a “lemon” may explain the paucity of foreign investment in emerging market economies. If investors are uncertain about the profitability of investments, intrinsically inefficient, temporary partnerships or joint ventures may serve as mechanisms through which information is transmitted. Temporary partnerships with joint investments by the domestic firm and the investor, together with a buy‐out option to the investor, may sometimes separate good and bad investment prospects in equilibrium. However, separating equilibria may fail to exist. Implications for foreign direct investment are traced and briefly related to the experience of transition economies. JEL classification: D 8; F 2; L 14; O 12