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Canadian Journal of Economics

Should Countries Block Foreign Takeovers of R&D Champions and Promote Greenfield Entry?

Scientific Article in English
Reference
Bertrand, Olivier, Katariina Nilsson Hakkala, Pehr‐Johan Norbäck and Lars Persson (2012). “Should Countries Block Foreign Takeovers of R&D Champions and Promote Greenfield Entry?”. Canadian Journal of Economics 45(3), 1083–1124. doi.org/10.1111/j.1540-5982.2012.01728.x

Authors
Olivier Bertrand, Katariina Nilsson Hakkala, Pehr‐Johan Norbäck, Lars Persson

In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high-quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high-quality targets because of strategic effects on the sales price. However, foreign firms ‘cherry pick’ high-quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.