Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive

Pehr-Johan Norbäck and Lars Persson

No 644, Working Paper Series from Research Institute of Industrial Economics

Abstract: Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect, which imply that the acquisition price is substantially higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.

Keywords: Investment Liberalization; Mergers & Acquisitions; Development; Ownership (search for similar items in EconPapers)
JEL-codes: F23 K21 L13 O12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2005-06-13
New Economics Papers: this item is included in nep-com and nep-law
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Investment liberalization -- Why a restrictive cross-border merger policy can be counterproductive (2007)
Working Paper: Investment Lilberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0644

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