Should countries block foreign takeovers of R&D champions and promote greenfield entry?
AbstractIn R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high-quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high-quality targets because of strategic effects on the sales price. However, foreign firms `cherry pick' high-quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 45 (2012)
Issue (Month): 3 (August)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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- Stiebale, Joel, 2013. "The impact of cross-border mergers and acquisitions on the acquirers' R&D — Firm-level evidence," International Journal of Industrial Organization, Elsevier, vol. 31(4), pages 307-321.
- Gould, David M. & Tan, Congyan & Emamgholi, Amir S. Sadeghi, 2013. "Attracting foreign direct investment : what can South Asia's lack of success teach other developing countries ?," Policy Research Working Paper Series 6696, The World Bank.
- Burger, Martijn J. & Ianchovichina, Elena I., 2014. "Surges and stops in FDI flows to developing countries : does the mode of entry make a difference ?," Policy Research Working Paper Series 6771, The World Bank.
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