Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 141: The Innovation and Productivity Effect of Foreign Take-Over of National Assets

Börje Johansson (), Hans Lööf () and Bernd Ebersberger
Additional contact information
Börje Johansson: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Hans Lööf: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Bernd Ebersberger: MCI

Abstract: Over the past decades, there has been a dramatic increase in the foreign-ownership of firms in the four Nordic countries Denmark, Finland, Norway and Sweden. This increase has generated interest in the welfare effect of foreign take-over of national assets. In this paper we ask: how would a firm’s behaviour and performance have been if a foreign owner had not acquired the firm? The analysis is based on a sample of 5 186 firm-level observations in four Nordic countries, of which close to 30 percent are owned by foreign companies. Using an empirical approach that accounts for both selection bias and simultaneity bias, we establish some new findings regarding foreign ownership. First, no robust difference in the propensity to be innovative can be established. Second, among the group of innovative firms, foreign-owned multinationals are generally outperformed by domestic multinationals in R&D and innovation engagement. Third, despite the fact that domestic multinationals are considerably more involved in national innovation systems than other firms, they are not producing more innovation per R&D-dollar, controlling for firm size, human capital and industry. Finally, we find that foreign take-over of firms is neutral with respect to labour productivity, and hence that no evidence of welfare gain or welfare drain of foreign ownership can be established.

Keywords: Multinational enterprises; Take-Over; Corporate Governance; Cross-country comparison; Spillovers; R&D; Innovation; Productivity

JEL-codes: C31; D21; F23; G34; L22; O31; O33

32 pages, September 9, 2008

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