Should R&D Champions Be Protected from Foreign Takeovers?

IFN Working Paper No. 772

49 Pages Posted: 30 Nov 2008 Last revised: 2 Jul 2020

See all articles by Olivier Bertrand

Olivier Bertrand

Université Paris I Panthéon-Sorbonne - TEAM

Katariina Nilsson-Hakkala

Aalto University

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: November 28, 2008

Abstract

We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model - that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs - are consistent with the data.

Keywords: FDI, M&A, R&D, Multinational Firms

JEL Classification: F23, L10, L20, O30

Suggested Citation

Bertrand, Olivier and Nilsson-Hakkala, Katariina and Norbäck, Pehr-Johan and Persson, Lars, Should R&D Champions Be Protected from Foreign Takeovers? (November 28, 2008). IFN Working Paper No. 772, Available at SSRN: https://ssrn.com/abstract=1308433 or http://dx.doi.org/10.2139/ssrn.1308433

Olivier Bertrand

Université Paris I Panthéon-Sorbonne - TEAM ( email )

106-112 boulevard de l'hôpital
Cedex 13 Paris, P75647
France

Katariina Nilsson-Hakkala

Aalto University ( email )

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

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

Lars Persson (Contact Author)

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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