Is acquisition-FDI during an economic crisis detrimental for domestic innovation?

María García-Vega, Apoorva Gupta and Richard Kneller

No 403, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We study how acquisition-FDI during economic crises affects R&D investments of target firms as compared to acquisitions made during periods of economic growth. Using a panel of Spanish firms, we find that foreign multinationals cherry-pick the best domestic firms, irrespective of timing of acquisition. Using matching and difference-in-difference regressions, we find that firms acquired during crises experience smaller declines in R&D than those acquired during periods of growth. Our results are consistent with the opportunity cost theory of R&D over the business cycle, as we also find that crisis-acquired firms prioritize new product creation over achieving economies of scale.

Keywords: Foreign Acquisition; Recession; Innovation; Business cycle (search for similar items in EconPapers)
JEL-codes: D22 G01 G34 O31 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-int, nep-sbm and nep-tid
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Working Paper: Is acquisition-FDI during an economic crisis detrimental for domestic innovation? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:403

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