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Cross‐border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada

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  • George J. Georgopoulos

Abstract

. Theoretical and empirical studies investigating the relationship between the exchange rate and FDI have generated mixed results. Using bilateral Canadian‐U.S. industry level count data on cross‐border mergers and acquisitions (M&As) and conditioning on industry tariff rates, value added share of industries, industry M&A trend activity, and the number of establishments, we find evidence that a real dollar depreciation of the home currency leads to an increase in the probability of foreign M&As but only in high R&D industries. These empirical results are consistent with Blonigen's asset acquisition hypothesis. Results on European M&As of Canadian firms also lean towards this result. Les études théoriques et empiriques de la relation entre taux de change et investissement direct à l'étranger donnent des résultats mixtes. A l'aide de données bilatérales canado‐américaines au niveau de l'industrie, pour les fusions et acquisitions (F&A) transfrontalières, et de certaines conditions imposées aux tarifs douaniers au niveau industriel, à la part de la valeur ajoutée des industries, à la tendance des F&A au niveau industriel, et au nombre des établissements, on montre qu'une dépréciation de la devise nationale en termes de dollars réels entraîne un accroissement de la probabilité de F&A étrangères mais seulement dans les industries à forte intensité de R&D. Ces résultats empiriques sont compatibles avec l'hypothèse d'acquisition d'actifs de Blonigen. Les résultats quant aux F&A européennes de firmes canadiennes tendent à supporter ce résultat.

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  • George J. Georgopoulos, 2008. "Cross‐border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 450-474, May.
    • Handle: RePEc:wly:canjec:v:41:y:2008:i:2:p:450-474
    DOI: 10.1111/j.1365-2966.2008.00470.x
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    2. Gnangnon, Sèna Kimm, 2018. "Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 15-29.
    3. Etzo, Ivan & Takaoka, Sumiko, 2016. "The impact of migrants on the cross-border M&A: Some evidence for Japan," MPRA Paper 71558, University Library of Munich, Germany.
    4. Tolentino, Paz Estrella, 2008. "The determinants of the outward foreign direct investment of China and India: Whither the home country?," MERIT Working Papers 2008-049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. Boyang Miao & Si Zhou & Jing Nie & Zhichao Zhang, 2013. "Renminbi exchange rate exposure: evidence from Chinese industries," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(4), pages 229-250, November.
    6. Takaoka, Sumiko & Etzo, Ivan, 2019. "International human capital mobility and FDI: Evidence from G20 countries," MPRA Paper 96746, University Library of Munich, Germany.
    7. Irina Chiriac, 2019. "Economic Performance in Merger Operations," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 667-675, December.
    8. Bao, Xiaohua & Deng, Jianpeng & Sun, Haoyu & Sun, Jin, 2022. "Trade policy uncertainty and foreign direct investment: Evidence from China’s WTO accession," Journal of International Money and Finance, Elsevier, vol. 125(C).
    9. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    10. Lee, Donghyun, 2013. "New evidence on the link between exchange rates and asset-seeking acquisition FDI," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 153-158.
    11. Tolentino, Paz Estrella, 2010. "Home country macroeconomic factors and outward FDI of China and India," Journal of International Management, Elsevier, vol. 16(2), pages 102-120, June.
    12. Shetty, Anand & Manley, John & Kyaw, Nyonyo, 2019. "The impact of exchange rate movements on mergers and acquisitions FDI," Journal of Multinational Financial Management, Elsevier, vol. 52.
    13. Vissa, Siva Kameswari & Thenmozhi, M., 2022. "What determines mergers and acquisitions in BRICS countries: Liquidity, exchange rate or innovation?," Research in International Business and Finance, Elsevier, vol. 61(C).

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