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A Model of Heterogeneous Firm Matches in Cross-Border Mergers & Acquisitions

Author

Listed:
  • Steven Brakman
  • Harry Garretsen
  • Michiel Gerritse
  • Charles van Marrewijk
  • Charles van Marrewijk

Abstract

In contrast to empirical evidence, recent theories of cross-border mergers and acquisitions (M&As) assume perfect knowledge transfers – from high to low productivity firms – between acquirer and target. Using the Melitz (2003) model of heterogeneous firms, we develop a matching model of cross-border M&As which allows for both perfect and imperfect knowledge transfers, where the latter leads to assortative matching on productivity for firms in cross-border M&As. This is in line with stylized facts (because M&As frequently occur between firms of similar productivity) and in contrast to the proximity-concentration trade-off (in which only the most productive firms have a physical presence in foreign markets). Allowing for M&As raises the firm viability cut-off level, average productivity and welfare in our model. The welfare benefits are weaker for more imperfect knowledge transfers.

Suggested Citation

  • Steven Brakman & Harry Garretsen & Michiel Gerritse & Charles van Marrewijk & Charles van Marrewijk, 2018. "A Model of Heterogeneous Firm Matches in Cross-Border Mergers & Acquisitions," CESifo Working Paper Series 7083, CESifo.
    • Handle: RePEc:ces:ceswps:_7083
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7083.pdf
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    References listed on IDEAS

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    Cited by:

    1. Koch, Michael & Smolka, Marcel, 2019. "Foreign ownership and skill-biased technological change," Journal of International Economics, Elsevier, vol. 118(C), pages 84-104.

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    More about this item

    Keywords

    cross-border merger & acquisitions; knowledge transfers; productivity differences;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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