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Cross-border Mergers and Acquisitions: On Revealed Comparative Advantage And Merger Waves

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Author Info
Steven Brakman () (University of Groningen)
Harry Garretsen (Utrecht University)
Charles van Marrewijk (Erasmus University Rotterdam)

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Abstract

By combining two large data sets (on international trade flows and cross-border mergers and acquisitions – M&As), we test two implications of Neary’s (2003, 2007) general oligopolistic equilibrium (GOLE) model (incorporating strategic interaction between firms in a general equilibrium setting). In terms of economic importance, the dominant merger wave variable is a positive global-all effect, indicating that M&A waves are an economy-wide, global phenomenon. Country-specific merger wave variables are of secundary importance. In accordance with the bilateral GOLE model as specified by Neary, we find strong evidence that acquiring firms operate in strong sectors. However, we also find (less pronounced) evidence that target firms are active in strong, not weak sectors, which we label the ‘target paradox’. We show how a multi-country extension of the GOLE model that allows for firm heterogeneity can explain this target paradox.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-013/2.

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Date of creation: 25 Jan 2007
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Handle: RePEc:dgr:uvatin:20080013

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Related research
Keywords: Comparative Advantage; Cross-border Mergers and Acquisitions; Merger Waves; General Oligopolistic Equilibrium Trade Model;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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. 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. [Downloadable!] (restricted)
  2. Ingmar Björkman & Günter K Stahl & Eero Vaara, 2007. "Cultural differences and capability transfer in cross-border acquisitions: the mediating roles of capability complementarity, absorptive capacity, and social integration," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 38(4), pages 658-672, July. [Downloadable!] (restricted)
  3. Jeroen Hinloopen & Charles Marrewijk, 2001. "On the empirical distribution of the Balassa index," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 1-35, March. [Downloadable!] (restricted)
  4. Gourieroux Christian & Monfort Alain & Trognon A, 1981. "Pseudo maximum likelihood methods : theory," CEPREMAP Working Papers (Couverture Orange) 8129, CEPREMAP.
    Other versions:
  5. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  6. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December. [Downloadable!] (restricted)
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  7. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 19(3), pages 411-432, September. [Downloadable!] (restricted)
  8. Olivier Bertrand & Habib Zitouna, 2006. "Trade Liberalization and Industrial Restructuring: The Role of Cross-Border Mergers and Acquisitions," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(2), pages 479-515, 06. [Downloadable!] (restricted)
  9. 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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  10. Cletus C. Coughlin & Eran Segev, 2000. "Location Determinants of New Foreign-Owned Manufacturing Plants," Journal of Regional Science, Blackwell Publishing, vol. 40(2), pages 323-351. [Downloadable!] (restricted)
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  11. Jeffrey J Reuer & Oded Shenkar & Roberto Ragozzino, 2004. "Mitigating risk in international mergers and acquisitions: the role of contingent payouts," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 35(1), pages 19-32, January. [Downloadable!] (restricted)
  12. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-20, May. [Downloadable!] (restricted)
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  13. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Walter Kuemmerle, 1999. "The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 30(1), pages 1-24, March. [Downloadable!] (restricted)
  15. J. Peter Neary, 2007. "Cross-Border Mergers as Instruments of Comparative Advantage," Review of Economic Studies, Blackwell Publishing, vol. 74(4), pages 1229-1257, October. [Downloadable!] (restricted)
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  16. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 625-653, May. [Downloadable!] (restricted)
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  17. J. Peter Neary, 2000. "Monopolistic Competition and International Trade Theory," Working Papers 200025, School Of Economics, University College Dublin. [Downloadable!]
  18. J Peter Neary, 2002. "Globalisation and Market Structure," Working Papers 200220, School Of Economics, University College Dublin. [Downloadable!]
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  19. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November. [Downloadable!] (restricted)
Full references

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. Ray Chaudhuri, A., 2008. "A Dynamic Model of Endogenous Mergers and Trade Liberalization," Discussion Paper 2008-22, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Ray Chaudhuri, A. & Benchekroun, H., 2008. "Welfare Effect of Mergers and Trade Liberalization," Discussion Paper 2008-009, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  4. J Peter Neary, 2005. "Trade Costs and Foreign Direct Investment," Working Papers 200512, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
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