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 329: Credit Constraints, Foreign Ownership, and Foreign Takeovers in Germany

Joachim Wagner () and John P. Weche Gelübcke ()
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Joachim Wagner: Leuphana University Lüneburg and CESIS, Stockholm
John P. Weche Gelübcke: Leuphana University Lüneburg, Germany

Abstract: In this paper we present the first evidence for a link between foreign ownership and credit constraints for Germany, one of the world's leading target countries for foreign direct investment. Furthermore, we contribute to the literature by investigating the impact of a foreign acquisition on the target firms' credit constraints for the first time. We use newly available comprehensive panel data that we constructed from information collected by the German statistical offices and from credit rating scores supplied by the leading German credit rating agency. We ind foreign owned firms in German manufacturing on average to show slightly more financing restrictions than domestically owned enterprises, but this very small difference diminishes once unobserved heterogeneity is taken into account. We further demonstrate that one reason for this finding is the preference of foreign investors for targets with relatively low credit-worthiness. Although the likelihood of a foreign acquisition appears to be correlated with credit constraints, there is no impact of foreign takeovers on the credit constraints of the target firms ex post and therefore no support for the hypothesis that foreign takeovers ease financial frictions.

Keywords: credit constraints; foreign ownership; acquisitions; Germany

JEL-codes: F21; F23; G34

33 pages, October 30, 2013

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