Cross-border mergers with flexible policy regime: The role of efficiency and market size

Mahelet Fikru () and Sajal Lahiri

Journal of the Japanese and International Economies, 2014, vol. 34, issue C, 58-70

Abstract: This study provides a theoretical and empirical framework for understanding the determinants of cross-border mergers. Past literature has focused on the effect of trade liberalization as the key factor triggering international mergers. We introduce the idea of flexible policy regime in which optimal policies are sensitive to whether a cross-border acquisition has taken place or not. In a free-trade model given asymmetries in marginal cost, we find that optimal subsidies decline when firms acquire inefficient foreign firms while optimal subsidies increase when firms acquire efficient firms. We also find that as the efficiency of the acquirer increases, the profitability of the acquisition and hence the likelihood that it takes place also increases. We find that the role of market size in triggering cross-border acquisitions may be limited even with free trade.

Keywords: Production tax; Flexible policy; Market size; Japan; OECD; Efficiency (search for similar items in EconPapers)
JEL-codes: F G34 L13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:34:y:2014:i:c:p:58-70

DOI: 10.1016/j.jjie.2014.05.001

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