Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 927: International Mergers with Financially Constrained Owners

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

Abstract: This paper proposes a cross-border M&A model with financially constrained owners in which the identity of the buyer and seller can be determined. We show that policies blocking foreign acquisitions to protect the domestic industry can be counterproductive. Foreign acquisition can increase the domestic owner’s investment in growth industries by reducing their financial restrictions. This calls for a ”financial” efficiency defense in the merger law. We also show that cross-border M&As are not only driven by effects on the merged entity, but also driven by the seller’s alternative investment opportunities.

Keywords: Investment Liberalization; Mergers & Acquisitions; Corporate Governance; Ownership

JEL-codes: F23; K21; L13; O12

32 pages, September 24, 2012

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