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European Economic Review

Cross–Border Acquisitions and restructuring: Multinational Enterprises and Private Equity Firms

Scientific Article in English
Reference
Baziki, Selva Bahar, Pehr-Johan Norbäck, Lars Persson and Joacim Tåg (2017). “Cross–Border Acquisitions and restructuring: Multinational Enterprises and Private Equity Firms”. European Economic Review 94, 166–184. doi.org/10.1016/j.euroecorev.2017.02.012

Authors
Selva Bahar Baziki, Pehr-Johan Norbäck, Lars Persson, Joacim Tåg

An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PEfirms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-firms compete over domestic assets and that incorporates endogenous financial frictions. MNEs’ advantages lies in firm-specific synergies and access to internal capital markets, whereas PE-firms are good at reorganizing target firms. We show that stronger firm-specific synergies, lower restructuring advantages for PE-firms, higher exit costs for PE-firms, better access to internal capital markets, a higher risk premium on lending, higher moral hazard problems, and higher trade costs all favor MNEs over PE-firms. We also present cross-country correlations that are consistent with these predictions.

Pehr-Johan Norbäck

+46 (0)8 665 4522
+46 (0)73 574 3379
pehr-johan.norback@ifn.se

Joacim Tåg

+46 (0)8 665 4524
joacim.tag@ifn.se