Working Paper No. 772

Should R&D Champions be Protected from Foreign Takeovers?

Published: October 17, 2008Pages: 48Keywords: FDI; M&A; R&D; Multinational FirmsJEL-codes: F23; L10; L20; O30
Published version

Should R&D Champions be Protected from Foreign Takeovers? Olivier Bertrand, Katariina Nilsson Hakkala, Pehr-Johan Norbäck and Lars Persson


We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition-investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model – that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs – are consistent with the data.
 

 

Pehr-Johan Norbäck

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

Lars Persson

Contact

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

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