Working Paper Series
Olivier Bertrand, Katariina Nilsson Hakkala, Pehr-Johan Norbäck
Should R&D Champions be Protected from Foreign Takeovers?
() and Lars Persson
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; (follow links to similar papers)
JEL-Codes: F23; L10; L20; O30; (follow links to similar papers)
48 pages, October 17, 2008
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