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

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  • Anusha Chari
  • Wenjie Chen
  • Kathryn M.E. Dominguez

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14786.

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Date of creation: Mar 2009
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Publication status: published as Anusha Chari & Wenjie Chen & Kathryn M E Dominguez, 2012. "Foreign Ownership and Firm Performance: Emerging Market Acquisitions in the United States," IMF Economic Review, Palgrave Macmillan, vol. 60(1), pages 1-42, April.
Handle: RePEc:nbr:nberwo:14786

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  2. Jens Matthias Arnold & Beata Smarzynska Javorcik, 2005. "Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 197, Centro Studi Luca d\'Agliano, University of Milano.
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  5. 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, MIT Press, vol. 106(4), pages 1191-217, November.
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Cited by:
  1. 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, University of Lüneburg, Institute of Economics 249, University of Lüneburg, Institute of Economics.
  2. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER International Seminar on Macroeconomics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 193 - 221.
  3. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Vadym Volosovych, 2010. "Deep Financial Integration and Volatility," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1006, Koc University-TUSIAD Economic Research Forum, revised Apr 2010.
  4. Forbes, Kristin & Fratzscher, Marcel & Straub, Roland, 2014. "Capital Controls and Macroprudential Measures: What Are They Good For?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9798, C.E.P.R. Discussion Papers.
  5. Egger, Peter & Eggert, Wolfgang & Winner, Hannes, 2010. "Saving taxes through foreign plant ownership," Journal of International Economics, Elsevier, Elsevier, vol. 81(1), pages 99-108, May.
  6. Jan Hagemejer & Joanna Tyrowicz, 2009. "Is the Impact Really That High? The Effect of FDI in Transition," Working Papers, Faculty of Economic Sciences, University of Warsaw 2009-02, Faculty of Economic Sciences, University of Warsaw.
  7. Pradhan, Jaya Prakash & Singh, Neelam, 2010. "Group Affiliation and Location of Indian Firms’ Foreign Acquisitions," MPRA Paper 24018, University Library of Munich, Germany.
  8. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers, Hong Kong Institute for Monetary Research 082013, Hong Kong Institute for Monetary Research.
  9. repec:rze:efinan:v:9:y:2012:i:2:p:24-33 is not listed on IDEAS
  10. 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, University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(2), pages 24-33, October.

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