Working Paper: CEPR ID: DP3166
Authors: Pehr-Johan Norbck; Lars Persson
Abstract: Investment liberalizing countries are often concerned that cross-border mergers & acquisitions might have an adverse effect on domestic firms and benefit multinational enterprises (MNEs). 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.
Keywords: FDI; mergers and acquisitions; restructuring
JEL Codes: F00; F20; K20; L10; L30; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MNE ownership (F23) | increased asset value (G32) |
| asset complementarity effect (G19) | increased acquisition price of domestic assets (F31) |
| competitive bidding (D44) | increased acquisition prices (G34) |
| nondiscriminatory policy (J78) | efficiency (D61) |
| nondiscriminatory policy (J78) | lower market capacity (D49) |
| nondiscriminatory policy (J78) | higher consumer prices (D19) |
| MNEs utilize domestic assets more efficiently (F23) | consumers benefit (D18) |