2012

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

Reprint No. 2012:34

Author(s): Oliver Bertrand, Katariina Nilsson Hakkala, Pehr-Johan Norbäck and Lars PerssonYear: 2012 Title: Canadian Journal of Economics Volume (No.): 45 (3) Pages: 1083–1124
Online article (restrictions may apply)
Preliminary version


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.


Reference:
Bertrand, Oliver, 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.

Pehr-Johan Norbäck

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Lars Persson

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Ph: +46 8 665 4504
lars.persson@ifn.se

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