Working Paper: NBER ID: w14786
Authors: Anusha Chari; Wenjie Chen; Kathryn M. E. Dominguez
Abstract: This paper examines the recent upsurge in foreign acquisitions of U.S. firms, specifically focusing on acquisitions made by firms located in emerging markets. Neoclassical theory predicts that, on net, capital should flow from countries that are capital-abundant to countries that are capital-scarce. Yet increasingly emerging market firms are acquiring assets in developed countries. Using transaction-specific acquisition data and firm-level accounting data we evaluate the post-acquisition performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms.
Keywords: foreign ownership; firm performance; emerging markets; acquisitions; US firms
JEL Codes: F21; F23; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Emerging country acquirers select US targets that are larger in size (F12) | Selection is influenced by observable characteristics (C52) |
| Post-acquisition, sales and employment at acquired firms decline (G34) | Performance of acquired firms (L25) |
| Post-acquisition, profitability (ROA) rises significantly (G34) | Performance of acquired firms (L25) |
| Acquired firms experience restructuring (G34) | Performance of acquired firms (L25) |
| Stock price response of target firms is positive (G34) | Stock price increases around acquisition announcement (G34) |