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Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?

Investment liberalizing countries are often concerned that cross-border mergers & acquisitions might have an adverse effect on domestic firms and benefit multinational enterprises (MNEs). However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect which imply that the acquisition price is substantially higher than the domestic seller's reservation price. The preemption effect also implies that the seller might capture some of the MNEs' initial rents. Moreover, other policies used in times of investment liberalization, such as restructuring, are explained through their effect on the value of the domestic assets.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 569.

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Length: 39 pages
Date of creation: 19 Dec 2001
Date of revision:
Handle: RePEc:hhs:iuiwop:0569
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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  1. Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," Working Paper Series 515, Research Institute of Industrial Economics.
  3. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  4. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September.
  5. Florencio Lopez-de-Silane, 1996. "Determinants of Privatization Prices," NBER Working Papers 5494, National Bureau of Economic Research, Inc.
  6. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
  7. Bartelsman, Eric J & Beetsma, Roel, 2000. "Why Pay More? Corporate Tax Avoidance Through Transfer Pricing in OECD Countries," CEPR Discussion Papers 2543, C.E.P.R. Discussion Papers.
  8. Persson, Lars & Norbäck, Pehr-Johan, 2001. "Privatization and Foreign Competition," Working Paper Series 545, Research Institute of Industrial Economics, revised 02 Feb 2001.
  9. Aitken, B. & Harrison, A. & Lipsey, R.E., 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States," Papers 95-21, Columbia - Graduate School of Business.
  10. repec:tpr:qjecon:v:112:y:1997:i:4:p:965-1025 is not listed on IDEAS
  11. Fridolfsson, Sven-Olof & Stennek, Johan, 2000. "Why Mergers Reduce Profits, and Raise Share-Prices," CEPR Discussion Papers 2357, C.E.P.R. Discussion Papers.
  12. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  13. Jack High (ed.), 2001. "Competition," Books, Edward Elgar, number 1751.
  14. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
  15. repec:tpr:qjecon:v:105:y:1990:i:2:p:465-99 is not listed on IDEAS
  16. Robert E. Lipsey, 2000. "Interpreting Developed Countries' Foreign Direct Investment," NBER Working Papers 7810, National Bureau of Economic Research, Inc.
  17. Norbäck, Pehr-Johan & Persson, Lars, 2002. "Cross-Border Acquisitions and Greenfield Entry," Working Paper Series 570, Research Institute of Industrial Economics.
  18. repec:oup:qjecon:v:112:y:1997:i:4:p:965-1025 is not listed on IDEAS
  19. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
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