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Shutdown versus M&A: An empirical investigation of Slovenian incumbent firms’ responses to foreign competition

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  • Zajc Kejžar, Katja

Abstract

The paper investigates the shutdown and merger responses of heterogeneous incumbent firms to increased foreign competition. Foreign firm entry is confirmed to be significantly tougher than domestic firm entry in terms of its reallocation forces. Accounting for the competing nature of shutdown and merger risk, the results for Slovenian manufacturing firms during the later stage of Slovenia’s transition show that the entry of foreign firms via either FDI or exports increases the relative probability of incumbents deciding to shut down, while the incentive to react by merging is present only when foreign firms enter via a greenfield investment within the same region. While a shutdown decision is detected as the principal response in case of import competition, no predominance can be identified in incumbents’ reactions to FDI entry. Furthermore, firms with foreign owner(s) proved less likely to be a target of takeovers/mergers, although they tend to close down more easily than locally owned rivals.

Suggested Citation

  • Zajc Kejžar, Katja, 2016. "Shutdown versus M&A: An empirical investigation of Slovenian incumbent firms’ responses to foreign competition," Economic Systems, Elsevier, vol. 40(2), pages 247-259.
  • Handle: RePEc:eee:ecosys:v:40:y:2016:i:2:p:247-259
    DOI: 10.1016/j.ecosys.2015.09.005
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    More about this item

    Keywords

    Firm exit; M&A; Foreign direct investment; Imports; Competing risk model;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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