Working Paper: NBER ID: w10405
Authors: Volker Nocke; Stephen Yeaple
Abstract: In this paper, we develop a novel theory of cross-border mergers and acquisitions. Firms can choose between different modes of foreign market access: exporting, greenfield FDI, and cross-border M&A. Our theory is based on three key ideas. First is heterogeneity in firms' capabilities. Second, these capabilities differ in their degree of international mobility. Third, capabilities are traded in a merger market. We address two questions: (1) what are the characteristics of firms that choose the various modes of foreign market access, and (2) how does the composition of international commerce vary across industries and countries? We show that the degree to which firms differ in their mobile and non-mobile capabilities plays a crucial role for the composition of international commerce: depending on whether firms differ in their mobile or immobile capabilities, cross-border mergers may involve the most or the least efficient active firms. A similar dichotomy obtains when analyzing the effects of country and industry characteristics on the distribution of firms' efficiencies.
Keywords: No keywords provided
JEL Codes: F12; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mobile capabilities (L96) | crossborder mergers (F23) |
| nonmobile capabilities (J62) | greenfield investments or exporting (F23) |
| mobility of capabilities (J62) | choice of foreign market access mode (F23) |
| source of firm heterogeneity (D21) | distribution of efficiencies within an industry (D39) |
| country and industry characteristics (L59) | firm efficiencies (G14) |