Should countries block foreign takeovers of R&D champions and promote greenfield entry?

Olivier Bertrand, Katariina Nilsson Hakkala, Pehr Johan Norbäck, Lars Olof Persson

Research output: Contribution to journalArticleScientificpeer-review

19 Citations (Scopus)

Abstract

In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high-quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high-quality targets because of strategic effects on the sales price. However, foreign firms 'cherry pick' high-quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.

Original languageEnglish
Pages (from-to)1083-1124
Number of pages42
JournalCANADIAN JOURNAL OF ECONOMICS-REVUE CANADIENNE D ECONOMIQUE
Volume45
Issue number3
DOIs
Publication statusPublished - Aug 2012
MoE publication typeA1 Journal article-refereed

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