A Model of Heterogeneous Firm Matches in Cross-Border Mergers & Acquisitions

Steven Brakman, Harry Garretsen, Michiel Gerritse, Charles van Marrewijk and Charles van Marrewijk
Authors registered in the RePEc Author Service: Charles van Marrewijk

No 7083, CESifo Working Paper Series from CESifo

Abstract: In contrast to empirical evidence, recent theories of cross-border mergers and acquisitions (M&As) assume perfect knowledge transfers – from high to low productivity firms – between acquirer and target. Using the Melitz (2003) model of heterogeneous firms, we develop a matching model of cross-border M&As which allows for both perfect and imperfect knowledge transfers, where the latter leads to assortative matching on productivity for firms in cross-border M&As. This is in line with stylized facts (because M&As frequently occur between firms of similar productivity) and in contrast to the proximity-concentration trade-off (in which only the most productive firms have a physical presence in foreign markets). Allowing for M&As raises the firm viability cut-off level, average productivity and welfare in our model. The welfare benefits are weaker for more imperfect knowledge transfers.

Keywords: cross-border merger & acquisitions; knowledge transfers; productivity differences (search for similar items in EconPapers)
JEL-codes: F20 L10 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-com, nep-ind and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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