Working Paper No. 666

Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive

Published: June 13, 2006Pages: 38Keywords: Investment Liberalization; Mergers & Acquisitions; Development, OwnershipJEL-codes: F23; K21; L13; O12

Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive Pehr-Johan Norbäck and Lars Persson


Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. 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 significantly higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.

Pehr-Johan Norbäck

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Ph: +46 8 665 4522
Mob: +46 73 574 3379
pehr-johan.norback@if...

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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