Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1057: Cross-Border Acquisitions and Restructuring: Multinational Enterprises versus Private Equity-Firms

Selva Baziki , Pehr-Johan Norbäck (), Lars Persson () and Joacim Tåg ()
Additional contact information
Selva Baziki: Department of Economics, Postal: Uppsala University, Uppsala, 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
Joacim Tåg: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PE-firms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-firms compete over domestic assets. MNEs' advantage lies in firm-specific synergies and retained earnings, whereas PE-firms are good at reorganizing target firms. Prevailing interest rates do not work in favor of PE-firms, but a lower risk premium and a better financial market development does. Stronger firm-specific synergies, however, favors MNEs. Performing a welfare analysis, we show that a policy of restricting PE-firms from buying domestic assets can be counterproductive.

Keywords: Cross-border; International Restructuring; Ownership Efficiency; Private Equity; M&As

JEL-codes: F23; F65; L13

30 pages, January 26, 2015

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