Working Paper: CEPR ID: DP8081
Authors: Roger Bandick; Holger Grg; Patrik Karpaty
Abstract: The aim of this paper is to evaluate the causal effect of foreign acquisition on R&D intensity in targeted domestic firms. We are able to distinguish domestic multinationals and non-multinationals, which allows us to investigate the fear that the change in ownership of domestic to foreign multinationals leads to a reduction in R&D activity in the country, as headquarter activities are relocated to the new owner?s home country. We use unique and rich firm level data for the Swedish manufacturing sector and different micro-econometric estimation strategies in order to control for the potential endogeneity of the acquisition dummy. Overall, our results give no support to the fears that foreign acquisition of domestic firms lead to a brain drain of R&D activity in Swedish MNEs. Rather, this paper finds robust evidence that foreign acquisitions lead to increasing R&D intensity in acquired domestic MNEs and non-MNEs.
Keywords: Domestic Multinationals; Foreign Acquisition; R&D
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Complementarity of R&D activities between parent and target firms (O36) | Increase in R&D intensity (O32) |
| Technology transfer from foreign acquirer (F23) | Increase in R&D intensity (O32) |
| Predicted probability of acquisition (C59) | Foreign acquisitions (F23) |
| Foreign acquisitions (F23) | Increase in R&D intensity (O32) |
| Foreign acquisitions (F23) | R&D intensity growth in acquired firms (O32) |
| Foreign acquisitions (F23) | R&D intensity growth in non-acquired firms (O32) |