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Foreign Ownership and Firm Performance: Emerging-Market Acquisitions in the United States

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  • Anusha Chari

    (University of North Carolina)

  • Wenjie Chen

    (University of Michigan)

  • Kathryn M.E. Dominguez

    (University of Michigan)

Abstract

This paper examines the recent upsurge in foreign acquisitions of U.S. firms, specifically focusing on acquisitions made by firms located in emerging markets. Neoclassical theory predicts that, on net, capital should flow from countries that are capital-abundant to countries that are capital-scarce. Yet increasingly emerging market firms are acquiring assets in developed countries. Using transaction-specific acquisition data and firm-level accounting data we evaluate the post-acquisition performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers576-600/r590.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 590.

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Length: 41 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:mie:wpaper:590

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: fdi; foreign direct investment;

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References

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  1. Sourafel Girma & Holger Görg, 2006. "Evaluating the foreign ownership wage premium using a difference-indifferences matching approach," The Institute for International Integration Studies Discussion Paper Series iiisdp165, IIIS.
  2. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  3. Froot, Kenneth A & Stein, Jeremy C, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1191-217, November.
  4. Forbes, Kristin J., 2010. "Why do foreigners invest in the United States?," Journal of International Economics, Elsevier, vol. 80(1), pages 3-21, January.
  5. Arnold, Jens Matthias & Javorcik, Beata Smarzynska, 2005. "Gifted kids or pushy parents? Foreign acquisitions and plant performance in Indonesia," Policy Research Working Paper Series 3597, The World Bank.
  6. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
  7. Agata Antkiewicz & John Whalley, 2006. "Recent Chinese Buyout Activity and the Implications for Global Architecture," NBER Working Papers 12072, National Bureau of Economic Research, Inc.
  8. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
  9. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
  10. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  11. 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.
  12. Girma, Sourafel & Kneller, Richard & Pisu, Mauro, 2007. "Do exporters have anything to learn from foreign multinationals?," European Economic Review, Elsevier, vol. 51(4), pages 993-1010, May.
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Citations

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Cited by:
  1. Peter Egger & Wolfgang Eggert & Hannes Winner, 2007. "Saving Taxes Through Foreign Plant Ownership," CESifo Working Paper Series 1887, CESifo Group Munich.
  2. repec:rze:efinan:v:9:y:2012:i:2:p:24-33 is not listed on IDEAS
  3. Tatiana Varcholova & Stela Beslerova, 2013. "Ownership Structure And Company Performance – Research And Literature Review," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(2), pages 24-33, October.
  4. Kathryn M.E. Dominguez, 2009. "International Reserves and Underdeveloped Capital Markets," Working Papers 600, Research Seminar in International Economics, University of Michigan.
  5. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.
  6. Forbes, Kristin & Fratzscher, Marcel & Straub, Roland, 2014. "Capital Controls and Macroprudential Measures: What Are They Good For?," CEPR Discussion Papers 9798, C.E.P.R. Discussion Papers.
  7. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: First Comparative Evidence on the Post-acquisition Target Performance using new Data," Working Paper Series in Economics 249, University of Lüneburg, Institute of Economics.
  8. Hagemejer, Jan & Tyrowicz, Joanna, 2009. "Is the Impact Really That High? The Effect of FDI in Transition," MPRA Paper 14934, University Library of Munich, Germany.
  9. Pradhan, Jaya Prakash & Singh, Neelam, 2010. "Group Affiliation and Location of Indian Firms’ Foreign Acquisitions," MPRA Paper 24018, University Library of Munich, Germany.
  10. Sebnem Kalemli-Ozcan & Bent Sørensen & Vadym Volosovych, 2010. "Deep Financial Integration and Volatility," NBER Working Papers 15900, National Bureau of Economic Research, Inc.
  11. Jan Hagemejer & Joanna Tyrowicz, 2012. "Is the effect really so large? Firm‐level evidence on the role of FDI in a transition economy-super-1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 20(2), pages 195-233, 04.

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