Growing lemons and cherries? Pre- and post-acquisition performance of foreign-acquired firms in new EU member states

Foreign acquisitions are an increasingly important mode of FDI in the new EU member states (NMS). Using ?rm-level data and a common estimation framework for seven NMS we study pre-and post-acquisition performance of acquired ?rms. We ?nd that selection criteria of target ?rms di¤er signi?cantly across countries. In some countries the evidence supports the idea of ?cherry picking? with better ?rms being chosen as targets for acquisition, while in the others ?lemons?with growth potential tend to get selected. Regardless of whether ?cherries?or ?lemons?are targeted, performance of acquired ?rms improved after the acquisition, whereby the boost in productivity has not been achieved by a reduction in employment, as it even increased, but rather by increased e¢ ciency in the use of labor and especially capital. Additionaly, foreign ownership is found to yield biggest rewards to small less productive ?rms.