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Credit Constraints, Foreign Ownership, and Foreign Takeovers in Germany

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  • Joachim Wagner

    ()
    (Leuphana University Lueneburg, Germany)

  • John P. Weche Geluebcke

    ()
    (Leuphana University Lueneburg, Germany)

Abstract

In this paper we present the first evidence for a link between foreign ownership and credit constraints for Germany, one of the world's leading target countries for foreign direct investment. Furthermore, we contribute to the literature by investigating the impact of a foreign acquisition on the target firms' credit constraints for the first time. We use newly available comprehensive panel data that we constructed from information collected by the German statistical oces and from credit rating scores supplied by the leading German credit rating agency. We find foreign owned firms in German manufacturing on average to show slightly more financing restrictions than domestically owned enterprises, but this very small difference diminishes once unobserved heterogeneity is taken into account. We further demonstrate that one reason for this finding is the preference of foreign investors for targets with relatively low credit-worthiness. Although the likelihood of a foreign acquisition appears to be correlated with credit constraints, there is no impact of foreign takeovers on the credit constraints of the target firms ex post and therefore no support for the hypothesis that foreign takeovers ease financial frictions.

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Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 283.

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Length: 38 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:lue:wpaper:283

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Web page: http://leuphana.de/institute/ivwl.html

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Keywords: credit constraints; foreign ownership; acquisitions; Germany;

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