Should R&D Champions be Protected from Foreign Takeovers?

Olivier Bertrand, Katariina Nilsson Hakkala, Pehr-Johan Norbäck and Lars Persson
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Olivier Bertrand: Graduate School of Management of St Petersburg State University and Toulouse School of Economics

No 772, Working Paper Series from Research Institute of Industrial Economics

Abstract: We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition-investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model – that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs – are consistent with the data.

Keywords: FDI; M&A; Multinational firms; R&D (search for similar items in EconPapers)
JEL-codes: F23 L10 L20 O30 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2008-10-17
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-pr~, nep-mic and nep-tid
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Citations: View citations in EconPapers (2)

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Working Paper: Should RD Champions be Protected from Foreign Takeovers? (2008)
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