Should countries block foreign takeovers of R&D champions and promote greenfield entry?
Pehr-Johan Norbäck () and
Canadian Journal of Economics, 2012, vol. 45, issue 3, 1083-1124
In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high-quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high-quality targets because of strategic effects on the sales price. However, foreign firms `cherry pick' high-quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.
JEL-codes: F23 L10 (search for similar items in EconPapers)
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