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Working Paper No. 927

International Mergers with Financially Constrained Owners

Working Paper
Berg, Aron, Pehr-Johan Norbäck and Lars Persson (2012). “International Mergers with Financially Constrained Owners ”. IFN Working Paper No. 927. Stockholm: Research Institute of Industrial Economics (IFN).

Aron Berg, Pehr-Johan Norbäck, Lars Persson

This paper proposes a cross-border M&A model with financially constrained owners in which the identity of the buyer and seller can be determined. We show that policies blocking foreign acquisitions to protect the domestic industry can be counterproductive. Foreign acquisition can increase the domestic owner’s investment in growth industries by reducing their financial restrictions. This calls for a ”financial” efficiency defense in the merger law. We also show that cross-border M&As are not only driven by effects on the merged entity, but also driven by the seller’s alternative investment opportunities.

Pehr-Johan Norbäck

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