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Is acquisition-FDI during an economic crisis detrimental for domestic innovation?

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  • García-Vega, María
  • Gupta, Apoorva
  • Kneller, Richard

Abstract

We study how acquisition-FDI during economic crises affects R&D investments of target firms as compared to acquisitions made during periods of economic growth. Using a panel of Spanish firms, we find that foreign multinationals cherry-pick the best domestic firms, irrespective of timing of acquisition. Using matching and difference-in-difference regressions, we find that firms acquired during crises experience smaller declines in R&D than those acquired during periods of growth. Our results are consistent with the opportunity cost theory of R&D over the business cycle, as we also find that crisis-acquired firms prioritize new product creation over achieving economies of scale.

Suggested Citation

  • García-Vega, María & Gupta, Apoorva & Kneller, Richard, 2023. "Is acquisition-FDI during an economic crisis detrimental for domestic innovation?," DICE Discussion Papers 403, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:403
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    More about this item

    Keywords

    Foreign Acquisition; Recession; Innovation; Business cycle;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G01 - Financial Economics - - General - - - Financial Crises
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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