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The Impact of Foreign Acquisitions on the Investors‘ R&D Activities – Firm-level Evidence

  • Joel Stiebale

    ()

This paper provides empirical evidence on the relationship between cross-border acquisitions and innovation activities at the fi rm level. In contrast to previous studies that analyze the eff ects on innovation in target fi rms, this paper investigates the eff ects on the investing fi rms. For the empirical analysis a unique fi rm-level data set is constructed that combines survey data for German fi rms with a merger and acquisition database. After a cross-border acquisition, investing fi rms display a higher rate of domestic expenditures for research and development. After controlling for endogeneity of foreign acquisitions by estimating a two-equation system with limited dependent variables and applying instrument variable techniques it is found that part of this correlation stems from a causal eff ect. The estimated eff ects are robust towards alternative identifi cation strategies and are higher in industries with high knowledge intensity. The analysis is complemented by an investigation of the eff ects on tangible investment spending and by a comparison of the eff ects of cross-border acquisitions to those of Greenfi eld foreign direct investments and domestic M&As.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0161.

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Length: 40 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:rwi:repape:0161
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  1. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
  2. Griffith, Rachel & Redding, Stephen J. & Simpson, Helen, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," CEPR Discussion Papers 4691, C.E.P.R. Discussion Papers.
  3. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2008. "R&D Investments, Exporting, and the Evolution of Firm Productivity," American Economic Review, American Economic Association, vol. 98(2), pages 451-56, May.
  4. Boyan Jovanovic & Peter L. Rousseau, 2008. "Mergers as Reallocation," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 765-776, November.
  5. Knut Blind & Andre Jungmittag, 2004. "Foreign Direct Investment, Imports and Innovations in the Service Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(2), pages 205-227, 06.
  6. Martin Falk & Rahel Falk, 2006. "Do Foreign-Owned Firms Have a Lower Innovation Intensity Than Domestic Firms?," WIFO Working Papers 275, WIFO.
  7. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics," CESifo Working Paper Series 1823, CESifo Group Munich.
  8. Stiebale, Joel & Reize, Frank, 2008. "The Impact of FDI on Innovation in Target Firms," Ruhr Economic Papers 50, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  9. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
  10. Johansson, Börje & Lööf, Hans, 2005. "FDI Inflows to Sweden Consequences for Innovation and Renewal," Working Paper Series in Economics and Institutions of Innovation 36, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  11. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," PIER Working Paper Archive 05-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. Luigi Benfratello & Alessandro Sembenelli, 2002. "Foreign Ownership and Productivity: is the Direction of Causality so Obvious?," Development Working Papers 166, Centro Studi Luca d'Agliano, University of Milano.
  13. Hans Loof & Almas Heshmati, 2006. "On the relationship between innovation and performance: A sensitivity analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 317-344.
  14. Bee Yan Aw & Mark J. Roberts & Tor Winston, 2007. "Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity," The World Economy, Wiley Blackwell, vol. 30(1), pages 83-104, 01.
  15. Fors, Gunnar & Svensson, Roger, 2002. "R&D and foreign sales in Swedish multinationals: a simultaneous relationship?," Research Policy, Elsevier, vol. 31(1), pages 95-107, January.
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