Working Paper: CEPR ID: DP3998
Authors: Pehr-Johan Norbäck; Lars Persson
Abstract: This Paper studies cross-border acquisitions and greenfield entry in a multi-firm setting. Acquisition entry is more likely when the acquirer gains a strong position in the product market, relative to greenfield entrants. We also show that such acquisitions might have a low profitability, however. The reason is that the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Moreover, this implies that domestic firms will then sell their assets at a substantially higher price than their reservation price. Implications for stock market values are also derived.
Keywords: FDI; mergers and acquisitions; stock market value
JEL Codes: F23; G34; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Crossborder acquisitions (F23) | strong position in the product market (L19) |
| strong position in the product market (L19) | Crossborder acquisitions (F23) |
| Acquisitions (G34) | low profitability (L19) |
| Acquisitions (G34) | stock market value of target firms increases (G34) |
| Bidding competition (D44) | stock market values of acquirers decrease (G34) |
| Bidding competition (D44) | stock market values of non-acquirers decrease (G34) |