Cross‐border networks and knowledge spillovers for foreign entry

Abstract

AbstractThis paper studies cross‐border networks formed in firms' prior destinations in the context of cross‐border mergers and acquisitions (M&A). An acquirer owns a subsidiary in a prior destination, and the subsidiary's domestic network forms the cross‐border network of the acquirer due to their ownership link. We focus on the subsidiary's network of neighboring firms in a location within the prior destination. Using rich data on cross‐border M&A, we show that knowledge spillovers from this cross‐border network have a positive impact on the acquirer's likelihood of entering a new destination. Our results highlight the global externalities of multinationals' international economic activities.