Investment Liberalization and Cross-Border Acquisitions: The Effect of Partial Foreign Ownership
This paper investigates the optimal strategy for a multinational to conduct FDI. We find that the incentives to use acquisition rather than greenfield investment change significantly if the multinational is allowed to have already an ownership interest in the target local firm before the market is fully liberalized. Interestingly, when investment costs are sufficiently high, the multinational prefers not entering the market at all with partial ownership in place, whereas a cross-border takeover would be the optimal entry mode otherwise. For intermediate levels of entry costs, holding a stake in the local producer reverses positively the profitability of a full acquisition compared to greenfield investment. Copyright © 2010 Blackwell Publishing Ltd.
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Volume (Year): 18 (2010)
Issue (Month): 2 (05)
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References listed on IDEAS
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- Norback, Pehr-Johan & Persson, Lars, 2007.
"Investment liberalization -- Why a restrictive cross-border merger policy can be counterproductive,"
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- Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
- Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers.
- Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," Working Paper Series 515, Research Institute of Industrial Economics.
- Ross, Thomas W., 1988. "On the price effects of mergers with freer trade," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 233-246. Full references (including those not matched with items on IDEAS)
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