Working Paper No. 569

Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitons?

Published: December 19, 2001Pages: 39Keywords: Investment Liberalization; FDI; Mergers & Acquisitions; RestructuringJEL-codes: F02; F23; K21; L13; L33; O12

Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitons? Pehr-Johan Norbäck and Lars Persson


Investment liberalizing countries are often concerned that cross-border mergers & acquisitions might have an adverse effect on domestic firms and benefit multinational enterprises (MNEs). However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect which imply that the acquisition price is substantially higher than the domestic seller's reservation price. The preemption effect also implies that the seller might capture some of the MNEs' initial rents. Moreover, other policies used in times of investment liberalization, such as restructuring, are explained through their effect on the value of the domestic assets.

 

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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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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