Globalization and Profitability of Cross-Border Mergers & Acquisitions

44 Pages Posted: 14 May 2008

See all articles by Pehr-Johan Norbäck

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Date Written: February 2007

Abstract

This paper studies how the surplus generated by the globalization process is divided between MNEs and owners of domestic assets. We construct an oligopoly model where the equilibrium acquisition pattern, the acquisition price and firms' greenfield investments are endogenously determined. Acquisition entry is shown to be more likely when the complementarity between domestic and foreign assets is high. However, we show that such acquisitions might have a low profitability, since the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Risks associated with different entry modes are also examined.

Keywords: FDI, greenfield investments, investment liberalization, mergers and acquisitions

JEL Classification: F23, G34, L13

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars, Globalization and Profitability of Cross-Border Mergers & Acquisitions (February 2007). CEPR Discussion Paper No. DP6102, Available at SSRN: https://ssrn.com/abstract=1132239

Pehr-Johan Norbäck (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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