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Foreign Ownership and Corporate Restructuring: Direct Investment by Emerging-Market Firms in the United States

Author

Listed:
  • Anusha Chari

    (University of North Carolina & NBER)

  • Wenjie Chen

    (George Washington University)

  • Kathryn M.E. Dominguez

    (University of Michigan & NBER)

Abstract

This paper examines the recent upsurge in foreign direct investment by emerging-market firms into the United States. Traditionally, direct investment flowed from developed to developing countries, bringing with it superior technology, organizational capital, and access to international capital markets, yet increasingly there is a trend towards Òcapital flowing uphillÓ with emerging market investors acquiring a broad range of assets in developed countries. Using transaction-specific information and firm-level accounting data we evaluate the operating performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms.

Suggested Citation

  • Anusha Chari & Wenjie Chen & Kathryn M.E. Dominguez, 2009. "Foreign Ownership and Corporate Restructuring: Direct Investment by Emerging-Market Firms in the United States," Working Papers 601, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:601
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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers601-625/r601.pdf
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    References listed on IDEAS

    as
    1. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, pages 197-209.
    2. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, pages 823-839.
    3. Deardorff, Alan V., 2005. "Ricardian comparative advantage with intermediate inputs," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 11-34, March.
    4. Ronald W. Jones, 1961. "Comparative Advantage and the Theory of Tariffs: A Multi-Country, Multi-Commodity Model," Review of Economic Studies, Oxford University Press, vol. 28(3), pages 161-175.
    5. Deardorff, Alan V, 1980. "The General Validity of the Law of Comparative Advantage," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 941-957, October.
    6. Courant, Paul N & Deardorff, Alan V, 1992. "International Trade with Lumpy Countries," Journal of Political Economy, University of Chicago Press, pages 198-210.
    7. Alan Deardorff, 1994. "Exploring the limits of comparative advantage," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 1-19.
    8. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Deardorff, A.V., 1993. "Exploring the Limits of Comparative Advantage," Working Papers 335, Research Seminar in International Economics, University of Michigan.
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    Citations

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    Cited by:

    1. Chen, Wenjie, 2011. "The effect of investor origin on firm performance: Domestic and foreign direct investment in the United States," Journal of International Economics, Elsevier, pages 219-228.
    2. Giannetti, Mariassunta & Liao, Guanmin & Yu, Xiaoyun, 2012. "The Brain Gain of Corporate Boards: A Natural Experiment from China," CEPR Discussion Papers 9190, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    foreign direct investment; capital flows; emerging markets; acquisitions; firm performance;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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