Investment Liberalization and Cross-Border Acquisitions: The Effect of Partial Foreign Ownership

14 Pages Posted: 12 Apr 2010

See all articles by Serena Fatica

Serena Fatica

European Commission - Joint Research Centre

Abstract

This paper investigates the optimal strategy for a multinational to conduct FDI. We find that the incentives to use acquisition rather than greenfield investment change significantly if the multinational is allowed to have already an ownership interest in the target local firm before the market is fully liberalized. Interestingly, when investment costs are sufficiently high, the multinational prefers not entering the market at all with partial ownership in place, whereas a cross-border takeover would be the optimal entry mode otherwise. For intermediate levels of entry costs, holding a stake in the local producer reverses positively the profitability of a full acquisition compared to greenfield investment.

Suggested Citation

Fatica, Serena, Investment Liberalization and Cross-Border Acquisitions: The Effect of Partial Foreign Ownership. Review of International Economics, Vol. 18, No. 2, pp. 320-333, May 2010, Available at SSRN: https://ssrn.com/abstract=1587137 or http://dx.doi.org/10.1111/j.1467-9396.2010.00866.x

Serena Fatica (Contact Author)

European Commission - Joint Research Centre ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

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