Cross-border mergers and acquisitions with heterogeneous firms: Technology vs. market motives |
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| Affiliation: | 1. University of Cagliari, Department of Economics and Business, Viale Fra Ignazio 17, 09125 Cagliari, Italy;2. University of Cagliari, Department of Economics and Business, CRENoS, Viale Fra Ignazio 17, 09125 Cagliari, Italy;1. Warwick Business School, University of Warwick, CoventryCV4 7AL, United Kingdom;2. School of Business and Management, Queen Mary University of London, LondonE1 4NS, United Kingdom;1. Department of Agricultural and Resource Economics, North Carolina State University, Box 8109, Raleigh, NC 27695, USA;2. Department of Economics, University of Texas at Dallas, 800 West Campbell Road, Richardson, TX 75080, USA;3. U.S. Department of the Treasury, 1500 Pennsylvania Ave. NW, Washington, DC 20220, USA;1. Department of Economics, University of Oregon, Eugene, OR 97403-1285, United States;2. NBER, United States;3. Maison des Sciences Economiques, 106-112 Bd de l''Hôpital, 75647 Paris Cedex 13, France;4. CESifo, Germany;5. Ecole Normale Superieure de Cachan 61, avenue du PrŽsident Wilson, Bat Cournot, Office 503, 94235 Cachan Cedex, France |
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| Abstract: | The most common form of foreign direct investment (FDI) is cross-border mergers and acquisitions (M&A). A common explanation for M&A activity identified in the industrial organization literature is that firms seek technological expertise. However, this has not been examined in the FDI literature. In this paper, I develop and estimate a model of cross-border M&A and focus on the technology seeking explanation. In particular, I develop a general equilibrium model of exporting, greenfield FDI, technology-seeking cross-border M&A, and market-seeking cross-border M&A with heterogeneous firms. The model predicts that firms from a larger country are more likely to acquire in a smaller country when M&A activity is driven by a technology-seeking motive, but the opposite is true when it is driven by a market-seeking motive. Using detailed data on worldwide M&A activity from 1985 to 2007, I find empirical evidence that cross-border M&A activity exhibits behavior consistent with this prediction. |
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| Keywords: | FDI Cross-border mergers and acquisitions |
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