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Globalization and Profitability of Cross-border Mergers & Acquisitions

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Author Info
Norbäck, Pehr-Johan
Persson, Lars

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Abstract

This paper studies how the surplus generated by the globalization process is divided between MNEs and owners of domestic assets. We construct an oligopoly model where the equilibrium acquisition pattern, the acquisition price and firms' greenfield investments are endogenously determined. Acquisition entry is shown to be more likely when the complementarity between domestic and foreign assets is high. However, we show that such acquisitions might have a low profitability, since the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Risks associated with different entry modes are also examined.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6102.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6102

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Related research
Keywords: FDI greenfield investments investment liberalization. mergers and acquisitions

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Norback, Pehr-Johan & Persson, Lars, 2004. "Privatization and foreign competition," Journal of International Economics, Elsevier, vol. 62(2), pages 409-416, March. [Downloadable!] (restricted)
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  2. Fridolfsson S.O. & Stennek J., 1999. "Why mergers reduce profits, and raise share prices: A theory of preemptive mergers," Working Papers 1999018, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
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  3. Mikhail Klimenko & Kamal Saggi, 2007. "Technical compatibility and the mode of foreign entry with network externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 176-206, February. [Downloadable!] (restricted)
  4. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-65, June. [Downloadable!] (restricted)
  5. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of Foreign Entry, Technology Transfer, and FDI Policy," CEPR Discussion Papers 2870, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Kamal Saggi & Halis Murat Yildiz, 2006. "On the International Linkages between Trade and Merger Policies *," Review of International Economics, Blackwell Publishing, vol. 14(2), pages 212-225, 05. [Downloadable!] (restricted)
  7. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," IEHAS Discussion Papers 0213, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
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  8. Kjell Erik Lommerud & Odd Rune Straume & Lars Sorgard, 2006. "National Versus International Mergers in Unionized Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 212-233, Spring.
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  9. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  10. Neary, J Peter, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Blackwell Publishing, vol. 10(4), pages 680-93, November. [Downloadable!] (restricted)
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  11. Halis Murat Yildiz, 2003. "National Versus International Mergers and Trade Liberalization," Working Papers 2003.56, Fondazione Eni Enrico Mattei. [Downloadable!]
  12. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July. [Downloadable!] (restricted)
  13. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series 644, Research Institute of Industrial Economics. [Downloadable!]
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  14. Lars Persson, 2005. "The Failing Firm Defense," Journal of Industrial Economics, Blackwell Publishing, vol. 53(2), pages 175-201, 06. [Downloadable!] (restricted)
  15. Norbäck, Pehr-Johan & Persson, Lars, 2002. "Cross-Border Acquisitions and Greenfield Entry," Working Paper Series 570, Research Institute of Industrial Economics. [Downloadable!]
  16. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  17. Persson, Lars, 2004. "Predation and mergers: Is merger law counterproductive?," European Economic Review, Elsevier, vol. 48(2), pages 239-258, April. [Downloadable!] (restricted)
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  18. Fridolfsson, Sven-Olof & Stennek, Johan, 2005. "Hold-up of anti-competitive mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 753-775, December. [Downloadable!] (restricted)
  19. Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May. [Downloadable!] (restricted)
  20. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November. [Downloadable!] (restricted)
  21. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December. [Downloadable!] (restricted)
  22. Gautam Gowrisankaran & Thomas J. Holmes, 2004. "Mergers and the Evolution of Industry Concentration: Results from the Dominant-Firm Model," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 561-582, Autumn.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bandick, Roger & Karpaty, Patrick, 2007. "Foregin Acquisition and Employment Effects in Swedish Manufacturing," Working Papers 2007:10, Örebro University, Swedish Business School. [Downloadable!]
    Other versions:
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