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Foreign Ownership and Firm Performance: Emerging Market Acquisitions in the United States

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  • Anusha Chari
  • Wenjie Chen
  • Kathryn M E Dominguez

Abstract

This paper examines the recent upsurge in foreign direct investment by emerging market firms into the United States. Traditionally, direct investment flowed from developed to developing countries, bringing with it superior technology, organizational capital, and access to international capital markets, yet increasingly there is a trend toward “capital flowing uphill” with emerging market investors acquiring a broad range of assets in developed countries. Using transaction-specific information and firm-level accounting data, the paper evaluates the operating performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980–2006. The empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of nonacquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets, and employment) relative to matched nonacquired firms. In the years following the acquisition target firm sales and employment decline while profitability rises compared with matched nonacquired firms, suggesting significant restructuring of the target firms.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Economic Review.

Volume (Year): 60 (2012)
Issue (Month): 1 (April)
Pages: 1-42

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Handle: RePEc:pal:imfecr:v:60:y:2012:i:1:p:1-42

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References

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  1. Kristin J. Forbes, 2008. "Why Do Foreigners Invest in the United States?," 2008 Meeting Papers 387, Society for Economic Dynamics.
  2. Girma, Sourafel & Gorg, Holger, 2007. "Evaluating the foreign ownership wage premium using a difference-in-differences matching approach," Journal of International Economics, Elsevier, vol. 72(1), pages 97-112, May.
  3. Girma, Sourafel & Kneller, Richard & Pisu, Mauro, 2007. "Do exporters have anything to learn from foreign multinationals?," European Economic Review, Elsevier, vol. 51(4), pages 993-1010, May.
  4. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  5. Agata Antkiewicz & John Whalley, 2006. "Recent Chinese Buyout Activity and the Implications for Global Architecture," NBER Working Papers 12072, National Bureau of Economic Research, Inc.
  6. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  7. Arnold, Jens Matthias & Javorcik, Beata Smarzynska, 2005. "Gifted kids or pushy parents? Foreign acquisitions and plant performance in Indonesia," Policy Research Working Paper Series 3597, The World Bank.
  8. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
  9. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  10. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
  11. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
  12. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
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Cited by:
  1. Egger, Peter & Eggert, Wolfgang & Winner, Hannes, 2010. "Saving taxes through foreign plant ownership," Journal of International Economics, Elsevier, vol. 81(1), pages 99-108, May.
  2. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.
  3. repec:rze:efinan:v:9:y:2012:i:2:p:24-33 is not listed on IDEAS
  4. Jan Hagemejer & Joanna Tyrowicz, 2009. "Is the Impact Really That High? The Effect of FDI in Transition," Working Papers 2009-02, Faculty of Economic Sciences, University of Warsaw.
  5. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 193-221 National Bureau of Economic Research, Inc.
  6. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Vadym Volosovych, 2010. "Deep Financial Integration and Volatility," Koç University-TUSIAD Economic Research Forum Working Papers 1006, Koc University-TUSIAD Economic Research Forum, revised Apr 2010.
  7. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.
  8. Pradhan, Jaya Prakash & Singh, Neelam, 2010. "Group Affiliation and Location of Indian Firms’ Foreign Acquisitions," MPRA Paper 24018, University Library of Munich, Germany.
  9. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: First Comparative Evidence on the Post-acquisition Target Performance using new Data," Working Paper Series in Economics 249, University of Lüneburg, Institute of Economics.
  10. Tatiana Varcholova & Stela Beslerova, 2013. "Ownership Structure And Company Performance – Research And Literature Review," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(2), pages 24-33, October.

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