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International M&A: Evidence on Effects of Foreign Takeovers

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Abstract

In this empirical paper I address the effects of international mergers and acquisitions (M&A) on the acquired firms. International direct investments in the home country are usually welcomed and considered to be beneficial for growth, employment, productivity and technological progress. This is mostly unquestioned for greenfield investments, i.e. the case when a foreign multinational firm sets up a new affiliate. But a majority of foreign direct investment (FDI) projects takes the form of mergers and acquisitions (M&A). This kind of inward FDI is much more critically debated. The focal point of this paper is the development of domestic German firms that are subject to a foreign takeover regarding employment and productivity. For this purpose, I use a comprehensive German micro-level dataset which includes all industries as well as firms from all size categories and all German regions. The sample covers the years from 2000 to 2007. A propensity score matching approach combined with a difference-indifference estimator is applied. Contrary to a naive comparison between foreign-owned firms and domestic firms or a comparison between firm characteristics before and after a foreign takeover, this econometric approach ensures that the causal effects are isolated. The main results are the following: Foreign owned firms are larger and more productive than domestic ones. Mostly firms with below average productivity (lemons) as well as rms with a relatively high productivity (cherries) are acquired. Market development motives seem to play an important role for foreign acquisitions. Concerning the effects of foreign takeovers, a descriptive analysis cannot find unambiguous effects of foreign takeovers. The propensity score matching estimator confirms this finding and detects neither positive nor negative significant effects of foreign takeovers.

Suggested Citation

  • Anselm Mattes, 2010. "International M&A: Evidence on Effects of Foreign Takeovers," IAW Discussion Papers 60, Institut für Angewandte Wirtschaftsforschung (IAW).
  • Handle: RePEc:iaw:iawdip:60
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    Cited by:

    1. John P. Weche Geluebcke, 2011. "Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics," Working Paper Series in Economics 213, University of Lüneburg, Institute of Economics.
    2. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: First Comparative Evidence on the Post-acquisition Target Performance using new Data," Working Paper Series in Economics 249, University of Lüneburg, Institute of Economics.
    3. John Weche Gelübcke, 2013. "The performance of foreign affiliates in German manufacturing: evidence from a new database," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(1), pages 151-182, March.
    4. Siedschlag Iulia & Kaitila Ville & McQuinn John & Zhang Xiaoheng, 2014. "International Investment and Firm Performance: Empirical Evidence from Small Open Economies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(6), pages 662-687, December.
    5. Kokko Ari & Söderlund Bengt & Tingvall Patrik Gustavsson, 2014. "Redirecting International Trade: Contracts, Conflicts, and Institutions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(6), pages 688-721, December.
    6. John P. Weche Gelübcke, 2013. "Foreign and Domestic Takeovers in Germany: Cherry-picking and Lemon-grabbing," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 59(4), pages 275-294.

    More about this item

    Keywords

    M&A; inward FDI; foreign takeover; employment; productivtity;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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