Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Pehr-Johan Norbäck () and Lars Persson ()
Additional contact information
Pehr-Johan Norbäck: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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

JEL-codes: F02; F23; K21; L13; L33; O12

Language: English

39 pages, December 19, 2001

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