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Greenfield versus merger and acquisition FDI: Same wine, different bottles?

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  • Ronald B. Davies
  • Rodolphe Desbordes
  • Anna Ray

Abstract

Relying on a large foreign direct investment (FDI) transaction level dataset, unique both in terms of disaggregation and time and country coverage, this paper examines patterns in greenfield (GF) versus merger and acquisition (M&A) investment. Although both are found to seek out large markets with low international barriers, important differences emerge. M&A is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to temporary shocks such as a currency crisis. Further, M&A is more affected by destination factors such as financial development and institutional quality. GF, on the other hand, is relatively more driven by factors such as origin comparative advantage and destination taxes. These empirical facts are consistent with the conceptual distinction made between these two modes, i.e., M&A involves transfer of ownership for integration or arbitrage reasons while GF relies on firms’ own capacities, which are linked to origin country attributes. They also suggest that GF and M&A are likely to respond differently to policies intended to attract FDI. Constructions neuves versus fusions et acquisitions par investissement direct à l’étranger : même vin, bouteilles différentes ? À l’aide d’une banque de données sur l’investissement direct à l’étranger (IDE) au niveau des transactions, qui est unique tant par sa désagrégation que par sa couverture de pays, ce texte examine les patterns de ce qui s’accomplit par construction neuve (CN) par opposition à ce qui se fait par fusions et acquisitions (FA). Même si les deux canaux sont utilisés pour envahir les grands marchés dotés de faibles barrières internationales à l’entrée, d’importantes différences émergent. Les FA sont affectées davantage par les barrières géographiques et culturelles et sont davantage le fait de comportements opportunistes en ce sens qu’elles sont sensibles aux chocs temporaires tels que les crises de devises. De plus, les FA sont affectées davantage par les facteurs reliés à la destination tels que le développement financier et la qualité des institutions. D’autre part, les CN sont davantage enclenchées par des facteurs comme les avantages comparatifs des pays d’origine et la fiscalité des pays de destination. Ces faits empiriques sont cohérents avec la distinction conceptuelle qui est faite entre ces deux modes d’expansion, c.‐à‐d., les FA employant un transfert de propriété aux fins d’intégration ou d’arbitrage, alors que les CN reposent sur les capacités des firmes elles‐mêmes qui sont rattachées aux attributs des pays d’origine. Les auteurs suggèrent que les canaux CN et FA sont susceptibles de répondre différemment aux politiques imaginées dans le but d’attirer les investissements directs de l’étranger.

Suggested Citation

  • Ronald B. Davies & Rodolphe Desbordes & Anna Ray, 2018. "Greenfield versus merger and acquisition FDI: Same wine, different bottles?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1151-1190, November.
  • Handle: RePEc:wly:canjec:v:51:y:2018:i:4:p:1151-1190
    DOI: 10.1111/caje.12353
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    5. Andre Jungmittag & Robert Marschinski, 2020. "Service Trade Restrictiveness and Foreign Direct Investment - Evidence from Greenfield FDI in Business Services," JRC Working Papers JRC122116, Joint Research Centre (Seville site).
    6. Blonigen, Bruce A. & Cristea, Anca & Lee, Donghyun, 2020. "Evidence for the effect of monitoring costs on foreign direct investment," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 601-617.
    7. Bruce A. Blonigen & Anca D. Cristea & Donghyun Lee, 2019. "Evidence for the Effect of Monitoring Costs on Foreign Direct Investment," NBER Working Papers 25933, National Bureau of Economic Research, Inc.
    8. Aneta Bobeni? Hinto?ová & Michaela Bruothová, 2019. "A link between innovation performance and inward foreign direct investments: A case of Slovakia," Proceedings of International Academic Conferences 9812114, International Institute of Social and Economic Sciences.

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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