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Research Institute of Industrial Economics (IFN) Working Paper Series

No 569:
Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?

Pehr-Johan Norbäck () and Lars Persson ()

Abstract: Investment liberalizing countries are often concerned that cross-border mergers & acquisitions might have an adverse effect on domestic firms and benefit multinational enterprises (MNEs). 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 reservation price. The preemption effect also implies that the seller might capture some of the MNEs' initial rents. Moreover, other policies used in times of investment liberalization, such as restructuring, are explained through their effect on the value of the domestic assets.

Keywords: Investment Liberalization; FDI; Mergers & Acquisitions; Restructuring; (follow links to similar papers)

JEL-Codes: F02; F23; K21; L13; L33; O12; (follow links to similar papers)

39 pages, December 19, 2001

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