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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)

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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Bibliographic Info

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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Web page: http://www.tinbergen.nl

Related research

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

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References

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  1. Walter Kuemmerle, 1999. "The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation," Journal of International Business Studies, Palgrave Macmillan, vol. 30(1), pages 1-24, March.
  2. J Peter Neary, 2002. "Globalisation and Market Structure," Working Papers 200220, School Of Economics, University College Dublin.
  3. Ingmar Bj�rkman & G�nter 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, vol. 38(4), pages 658-672, July.
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  7. Brakman, Steven & Heijdra, Ben J., 2002. "The monopolistic competition revolution in retrospect," CCSO Working Papers 200215, University of Groningen, CCSO Centre for Economic Research.
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  15. J Peter Neary, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Working Papers 200404, School Of Economics, University College Dublin.
  16. Charles van Marrewijk & Gus Garita, 2008. "Countries of a Feather flock together," Tinbergen Institute Discussion Papers 08-067/2, Tinbergen Institute, revised 19 Sep 2008.
  17. 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.
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Citations

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Cited by:
  1. Ray Chaudhuri, A. & Benchekroun, H., 2008. "Welfare Effect of Mergers and Trade Liberalization," Discussion Paper 2008-19, Tilburg University, Center for Economic Research.
  2. Neary, J. Peter, 2009. "Trade costs and foreign direct investment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 207-218, March.
  3. Amrita Ray Chaudhuri & Hassan Benchekroun, 2012. "Welfare Effect of Mergers and Multilateral Trade Liberalization," Review of International Economics, Wiley Blackwell, vol. 20(1), pages 119-133, 02.
  4. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Comparative advantage, cross-border mergers and merger waves: International economics meets industrial organization," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 7(1), pages 22-26, 04.
  5. Ray Chaudhuri, A., 2008. "A Dynamic Model of Endogenous Mergers and Trade Liberalization," Discussion Paper 2008-22, Tilburg University, Center for Economic Research.
  6. Rudy Colacicco, 2013. "Strategic Trade Policy in General Oligopolistic Equilibrium," FIW Working Paper series 126, FIW.
  7. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics," CESifo Working Paper Series 1823, CESifo Group Munich.
  8. Charles van Marrewijk & Gus Garita, 2008. "Countries of a Feather flock together," Tinbergen Institute Discussion Papers 08-067/2, Tinbergen Institute, revised 19 Sep 2008.

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