Foreign Acquisition Research Articles

CFIUS Expanded—How will the Broadened Scope Affect Private Equity?

On August 13th, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). FIRRMA overhauls and significantly expands the jurisdiction of the Committee on Foreign Investment in the U.S. (CFIUS), which reviews, modifies and has the power to prohibit certain foreign acquisitions and investments in U.S. businesses, including private equity and other fund investments. FIRRMA significantly expands the reach of CFIUS beyond transactions that result in foreign control, gives CFIUS the ability to review a much broader set of industries, and makes the review of certain investments mandatory. The expansion will re-shape the way that private equity transactions will be structured going forward.

Foreign market entry through acquisition and firm financial performance

PurposeThe international market entry strategy by acquisition is one of the critical options for success in international business. The decision to acquire a local firm is expected to impact the post-entry financial performance of the local firm as the acquirers come with proprietary advantages to improve the overall performance of the acquired company. The purpose of this paper is to empirically examine the post-acquisition financial performance of acquired foreign subsidiaries and comparable unacquired local firms in Ghana to determine the effect of foreign acquisition on the financial performance of the local subsidiaries.Design/methodology/approachA quantitative approach was adopted in this study. A sample of 100 locally acquired and non-acquired firms were studied using purposive and convenience sampling method. The research adopted the propensity score matching and the differences in difference methodologies to determine the returns on assets (ROA) of non-acquired local firms and acquired foreign subsidiaries are compared one year pre-acquisition t1 to two years post-acquisition t2.FindingsThe results demonstrate a higher post-acquisition financial performance of locally acquired foreign subsidiaries in relation to their local counterparts in Ghana. Firms with pre-acquisition modernized ownership structures performed better than state-owned firms and firms with high pre-acquisition absorptive capacity outperformed firms with lower pre-acquisition absorptive capacity. The results also indicate that ROA for acquired local firms in the year of acquisition drops in relation to the year prior to acquisitionResearch limitations/implicationsA major limitation of this research is that the relative capability of the parent companies and experience in the transfer of knowledge to the acquired local subsidiaries was not considered. The real impact of the various multinationals would have revealed how the capability and competencies of the different parent companies whose subsidiaries this study considered in the paper make a difference in their performance. The study did not also consider the value of parent company participation in the local management of the acquired subsidiaries. Whereas some acquired firms had parent company staff participating in the local management, others did not have same, thus challenging the performance results without any control of this variable. The other limitation of this research is the fact that it did not also consider the experience of the parent company as a factor that can influence the performance of the subsidiary. The more experienced the parent company is in engaging foreign markets, the more likely the support for the subsidiary will result in higher performance as parent company brings previous learnings. Another limitation of this study is that it measures the financials only (ROA) and hence does not provide a 360° assessment of the subsidiary performance, which includes the operational and overall subsidiary effectiveness. This research has not empirically examined all aspects of foreign acquisitions in Ghana and thus has many aspects for future exploration that other researchers may focus on. The paper has not considered the experience and capability of the parent company to transfer technology, innovation and all the advantages of multinationals to the post-acquisition performance of subsidiaries. More experienced multinationals are most likely to transfer knowledge faster to subsidiaries than less experienced ones, thus likely to show better performance post-acquisition than the less experienced ones. The effect of this phenomenon has not been considered in this study. Parent company participation in the local management of the subsidiary can also make a difference in the post-acquisition performance equation but this has not been considered in this research. Some parent companies actively participate in the local subsidiary management as management support for the subsidiary. This might have some effect on the subsidiary post-acquisition performance but this study does consider this. Other researchers may want to look into this factor. Future researchers may also assess the differences in performance of subsidiaries that are wholly owned and partial owned in Ghana. The performance of Greenfield joint ventures and local firm acquisitions can also be studied.Practical implicationsFindings of this research has implications for firms using acquisition as foreign market entry strategy to inform the choice of local partners to select for acquisitions as pre-acquisition ownership structure and absorptive capacity of local Ghanaian firms impact post-acquisitions performance. Ghanaian firms also seeking to attract foreign investments into their businesses will also find the results useful as they organize to meet prospective acquirers’ expectations, for example, building their human capacity and ownership structures, developing export and ensuring debt rations to attract potential acquirers.Originality/valueAcquisitions as an international market entry strategy continue to gain grounds with lots of research in the area. However, there is scanty research on post-acquisition financial performance, especially in the developing country context, and this paper fills that yawning knowledge gap by comparing acquired and non-acquired local firms in Ghana to determine if foreign acquisitions lead to better ROA.

Ownership Structure and Productivity of Multinationals

We examine the ownership structure and productivity of multinational affiliates and their effects on domestic industry. We first separate plant-level efficiency into a physical productivity and a price component. Multinationals target plants with high prices and markups. Upon acquisition they raise physical productivity but lower prices, leaving markups unchanged, especially when they are majority owners. This pro-competitive effect means that multinationals' productivity effects may be previously under-estimated. Multinational presence in an industry increases physical productivity while lowering prices at domestic firms, especially when majority-owned affiliates are present. Ownership structure and foreign acquisitions therefore play an important role in driving aggregate productivity growth.

Investment Protection of Commercial Activities in Space: Treaties, Contracts, Licenses, Insurance, Arbitration

Abstract The article focuses on the protection of foreign investment against political risk in the host state regarding commercial activities in outer space, an area not subject to national appropriation and sovereignty. The general space treaty and national legal frameworks for such activities fail to address the needs of private space enterprises. Under international investment law, commercial space activities generally meet common subject matter scope definitions of ‘investment’ and ‘investor’ in investment treaties. But foreign acquisitions in the space industry may affect national security interests of the host state and be limited as a sector for foreign investment. Moreover, as investment treaties generally cover an investment only if it is made in the territory of the host state, uncertainties may arise as to whether activities and assets of space enterprises in outer space are covered.

Some estimates of the book collection accession dynamics in the Library on Natural Sciences of the Russian Academy of Sciences

The paper analyzes data on the flow of non-periodical publications entering the collections of the Centralized Library System headed by the Library for Natural Sciences of the Russian Academy of Sciences (LNS RAS). The analysis is carried on for a five-year interval (2013-2017). It gives the general annual quantitative characteristics of domestic and foreign publications acquisition. The author shows a sharp drop in the number of incoming foreign, as well as translated publications, on natural sciences. The article presents the efficiency analysis of receipting publications on a legal copy (LC), which shows that the efficiency (a share of publications for the current year in LC flows), although slightly increasing over the past year, remains rather low. Publications of 2017 not received by LNS RAS in the LC flow have been identified, and their reconciliation with the Russian State Library catalog has been carried out.

Financial Protectionism, M&A Activity, and Shareholder Wealth

We study the economic consequences of the Foreign Investment and National Security Act (FINSA). FINSA is a protectionist foreign investment screening law that grants U.S. regulators broad new powers to revise or reject foreign acquisitions of U.S. firms. After FINSA, takeovers and equity values decline for firms in 61 industries – comprising one-third of the Compustat universe – that regulators deem relevant to national security. A wide variety of robustness tests corroborate. This study documents an important tradeoff between U.S. national security and shareholder wealth: Securities regulation designed to address national security threats deters demand for U.S. equities and lowers firm value.

A consumer-surplus standard in foreign acquisitions, foreign direct investment, and welfare

This study scrutinizes the ramifications of the strategic use of a consumer welfare argument in regulating foreign acquisitions and foreign market entry (i) on a multinational’s choice between acquiring a local firm’s existing assets (via negotiations or auctions) and investing in new assets via greenfield entry, or trade, under both complete and incomplete information; and (ii) on welfare. Any foreign acquisition fulfilling a minimum output requirement imposed by the host country as part of the foreign market entry regulation is in the best interest of the multinational even when there is complete trade liberalization. A local firm appropriates a bigger share from acquisition gains in an auction, and prefers generating information asymmetries. Welfare improves with a larger scope for ex-post firm heterogeneity when the foreign market entry regulation includes a minimum output requirement for foreign acquisitions based on consumer welfare.

A U.S. Perspective on China's External Economic Disputes in the Past 40 Years and in the Coming 40 Years

On the disputes over China’s trade imbalance, (1) they were marked by analytical confusion over the meaning of the term “equilibrium exchange rate”; (2) China’s trade imbalance reflects the economic conditions in both China and abroad, and that the efficient and fair solution of the problem requires policy changes not only by China but also by the US; (3) the dispute on exchange rate misalignment has been a diversion away from (a) addressing the underlying structural factors causing the trade imbalance, and (b) improving the inadequacy of US job transition programs that has exacerbated US unhappiness with trade imbalance. On the industrial policy dispute, (1) the issue of forced technology transfer is largely a dispute about a large economy using its market power to benefit itself at the expense of its trade partners; (2) this use of market power is normally temporary because of the almost inevitable retaliation by other large countries; (3) notion of national security that is commonly adopted in the US trade policy debate is overly broad and short-sighted, and, unless these two aspects are corrected, they will hurt the US economy and weaken US national security in the long-run; (4) the US must reform the CFIUS (Committee on Foreign Investment in the United States) process of reviewing foreign acquisition of US technology by (a) making the process more comprehensive (e.g. setting up foreign-owned R&D centers in US) and (b) making the process more operational by a defining a list of technologies for CFIUS to cover, a list that is constantly updated. On China’s Belt Road Initiative (BRI), (1) as the number of BRI project grows and as the number of partner countries increases, the number of economic disputes that China will be involved in will grow; (2) China should ensure that the BRI projects in a country are beneficial to the general population of that country and not just politically-biased toward the government in power at that time because, unlike in China, most governments in other countries come and go more frequently; and (3) economic disputes are a systemic feature of the present uncoordinated multi-polar world. Our principal policy suggestion to China is that, because China’s economy in 2018 is very different from that in 1978, there should be more reciprocity in China’s trade and investment relations with the advanced economies. China should not only give national treatment in the near future to foreign firms but should also set up a mechanism to start easing up on foreign acquisition of Chinese firms in a manner that is consistent with China’s national security concerns. Our principal policy suggestion to the US is to stop equating strategic competition with economic competition. Strategic competition is normally a zero-sum game while economic competition is usually a zero-sum game in the short-run, but generally creates a win-win outcome in the long-run. National economic dynamism and economic resilience emerge from international economic competition and not from sheltering domestic high-tech firms permanently.

Foreign acquisition and internal organization

We study the effect of foreign takeovers on firm organization. Using a comprehensive data set of Portuguese firms and workers spanning two decades, we find that foreign acquisitions lead to: (1) an expansion in the scale of operations; (2) a higher number of hierarchical layers; and (3) higher wage inequality between the top and bottom layers. These results accord with a theory of knowledge-based hierarchies in which foreign takeovers lead to improved productivity, higher demand, or reduced internal communication costs, and thereby induce the acquired firms to reorganize. Evidence from auxiliary survey data reveals that acquired firms are more likely to use information technologies that reduce internal communication costs.

DEVELOPMENT OF COGNITIVE SKILLS WHILE ACHIEVING FOREIGN LANGUAGE LEXICAL COMPETENCE OF PROSPECTIVE IT SPECIALISTS

The article deals with the analysis of the peculiarities of operation and development of cognitive skills while developing foreign lexical competence of prospective IT specialists. The issue of mastering the complex of cognitive skills that have an immediate impact on the effectiveness of acquisition of IT specialists’ lexical competence hasn’t received serious consideration. The essence and structure of foreign language lexical competence of prospective IT specialists are outlined. Foreign language lexical competence of prospective IT specialists is considered as an ability and readiness to adequately understand and use lexical units and terms in the process of foreign language communicative activity. The structure of foreign language lexical competence of prospective IT specialists includes lexical knowledge, lexical skills and lexical awareness. High concentration of attention provides durability of memorization, causes rapid and lengthy associative links in memory while acquiring foreign vocabulary. The vital factor of acquisition of foreign vocabulary is the character of learning assignments that are notable for novelty, crucial issues and situations, bear personal importance for learners. Emergence of visual images of English words in students’ minds make words penetrate into long-term memory. Timely retention of the lexical units from long-term memory facilitates development of the main types of memory (sensor, short-term and long-term memories). Memorization takes place by the principle: image + action = memory. The information that is stored in short-tem memory can be transferred into long-tem memory by its repetition and visualization. Receptive and productive lexical skills maintain the functions of long-term memory while developing foreign lexical competence of IT specialists.The communicative situations (problem solving) of professional foreign language communication of IT specialist perform the function of the context of foreign vocabulary acquisition. The scientists offer an array of methods of problem solution: abstraction, analogy, brain storming, “division and win”, hypothesis testing, proof, analysis of causes and effects The skills of time management and eliminations of distracters allow to focus attention while doing learning assignments. Management of learning time envisages to set a general goal and a system of objectives for a definite period and to gradually extend balance between the span of focused attention and amount of the processed information.

How extractive industries affect health: Political economy underpinnings and pathways

A systematic and theoretically informed analysis of how extractive industries affect health outcomes and health inequities is overdue. Informed by the work of Saskia Sassen on “logics of extraction,” we adopt an expansive definition of extractive industries to include (for example) large-scale foreign acquisitions of agricultural land for export production. To ground our analysis in concrete place-based evidence, we begin with a brief review of four case examples of major extractive activities. We then analyze the political economy of extractivism, focusing on the societal structures, processes, and relationships of power that drive and enable extraction. Next, we examine how this global order shapes and interacts with politics, institutions, and policies at the state/national level contextualizing extractive activity. Having provided necessary context, we posit a set of pathways that link the global political economy and national politics and institutional practices surrounding extraction to health outcomes and their distribution. These pathways involve both direct health effects, such as toxic work and environmental exposures and assassination of activists, and indirect effects, including sustained impoverishment, water insecurity, and stress-related ailments. We conclude with some reflections on the need for future research on the health and health equity implications of the global extractive order.

Inward Foreign Direct Investment and U.S. Public Opinion on Immigration

I investigate how the direct investment of foreign firms in the United States affects public opinion on immigration. On one hand, when foreign firms invest in the United States, local residents may have job opportunities and a better understanding of foreign cultures following social and work‐related interactions with foreign employees at multinationals. As a result, American workers may have a positive attitude toward immigration. On the other hand, when local residents see foreign investment as a foreign acquisition of American assets, or if they experience any unpleasant interactions with foreign nationals at multinationals, foreign investment may result in a negative impact on public perception on immigration. My empirical test of inward investment's impact on public opinion demonstrates the aforementioned contrasting impacts: While more local employees working at foreign multinationals lead to positive sentiments on immigration, the existence of more local affiliates of foreign firms has a negative impact on public opinion of immigration.

Emerging market MNCs' cross-border acquisition completion: Institutional image and strategies

This study investigates the negative effect of the home country's institutional image on emerging-market multinational companies' acquisitions, and how these companies can increase their acquisition completion by overcoming this effect. We propose that a foreign acquisition is more likely to be completed if: (1) the acquirer has an extended home base - it has inward internationalization experience, or it acquires through overseas subsidiaries; and (2) it enters institutionally close markets. Using longitudinal data on 13,259 acquisitions between 1996 and 2012 by firms from ten major emerging economies, we empirically test our hypotheses. The findings have important implications for scholars, policymakers and managers.

Impact of institutional reforms and industry structural factors on market returns of emerging market rivals during acquisitions by foreign firms

This paper seeks to understand the joint impact of institutional reforms and industry structural factors on market returns earned by rivals in an emerging market during foreign acquisitions. We use a sample of 238 foreign acquisitions in India during the period 2004–2013 and find empirical evidence to support the notion that institutional reforms, foreign competition and business group competition positively impact the market returns of the rivals of acquired firms. Additionally, we find that the effects of foreign competition and business group competition on rivals’ market returns are shaped by the degree of institutional reforms in the industry, indicating that firms’ market returns in emerging markets during foreign acquisitions can be better understood through the incorporation of the joint role of industry structural factors and institutional reforms.

How do firm political connections impact foreign acquisitions? The effects of decision makers' political and firm embeddedness

Research Summary: We examine how firm political connections established through the political embeddedness of senior decision makers affect firms' foreign acquisition strategies. We argue that such political embeddedness affects the mental models of decision makers and, in turn, influences their preferences for particular strategies. We propose that political embeddedness leads to the formation of mental models that favor foreign acquisition strategies. We further argue that the firm embeddedness of politically embedded decision makers alters their mental models, thereby mitigating their inclination for such strategies. We find evidence consistent with our mental models explanation using a sample of foreign acquisitions made by French publicly traded firms during the 2009–2014 period. Overall, this study contributes to a better understanding of the mechanisms through which political connections impact global strategy.Managerial Summary: We investigate how firm political connections affect firms' foreign acquisition strategies. We argue that when firms have top decision makers with close connections to the government, they will make more foreign acquisitions. We further argue that this inclination toward foreign acquisitions is driven primarily by nonexecutive board members, with politically connected executives appearing to be more reluctant to engage in such strategies. We find evidence consistent with these ideas when examining foreign acquisitions made by French publicly traded firms managed by graduates of the prestigious ENA government school, which trains many government and senior civil servants in France.

Cross-Border Mergers and Acquisitions and the Role of Free Trade Agreements

ABSTRACTThis article investigates the impact of the formation of free trade agreements (FTAs) on cross-border mergers and acquisitions (M&As). Using the comprehensive M&As dataset of Securities Data Company, we find that FTA relationship is associated with more bilateral cross-border M&As. Second, the cross-border M&As activities between a FTA country-pair do not increase faster than the acquiring country’s total foreign acquisitions, suggesting no evidence of investment diversion effect of FTA. Third, we find that existing FTA relationship with other countries positively affect cross-border M&As between a FTA country-pair. But these third-country FTA effects differ for acquiring country and target country when we look at the ratio of a country-pair’s FTA relative to the acquiring country’s total foreign M&As. Moreover, by exploring the detailed information on acquiring and target firms, we reveal that the effect of FTA differs for horizontal, vertical and conglomerate cross-border M&As. Our results are robust to various measures of M&As activities and econometric methods used.

Foreign acquisitions and firm performance: The moderating role of prior foreign experience

This paper relies on a sample of 9419 acquisitions by 1443 UK firms during 1988 to 2014 to investigate the impact of foreign acquisitions on corporate performance. Moreover, the moderating role of firms' prior exposure to foreign markets on the foreign acquisition-performance link is explored. The paper finds that, on average, foreign acquisitions have a negative impact on corporate performance. However, the negative impact of foreign acquisitions disappears under two circumstances: (1) when domestic firms undertake foreign acquisitions; and (2) when highly experienced multinationals undertake foreign acquisitions. Collectively, the findings imply that the benefits (costs) associated with foreign acquisitions are greater (lower) for new entrants into foreign markets and for highly experienced multinationals.

Chinese foreign acquisitions aimed for strategic asset-creation and innovation upgrading: The case of Geely and Volvo Cars

The acquisition and integration of Western companies into Chinese business groups, the impact of host country region innovation dynamics, and the consequences for Chinese firms' innovation capabilities represent a void in the existing literature. This study applies an in-depth longitudinal case study of a cross-border M&A and links the strategic asset-augmentation literature and location theories to address the influence of target firm characteristics on the acquiring firm's innovation capabilities. Results show how the acquisition decision is influenced by post-acquisition accessibility to, and leverage of, firm-level capabilities, macro-level conditions, and the ability to draw advantages from host country regional innovation dynamics to leverage global innovation capabilities. The study extends the asset-augmentation literature to include the notion of strategic asset-creation as a motive for M&A and demonstrates the dynamics of strategic asset-creation in the automotive industry. This study makes three contributions. First, it provides a definition of strategic asset-creation in the automotive industry; Second, it provides a more comprehensive explanation of the importance of spatial dynamics in regional attractiveness in strategic asset-creation processes of emerging market MNCs (EMNCs); Third, it demonstrates how EMNCs harness, absorb, and create new strategic assets.

Transplanting corporate culture across international borders: Foreign direct investment and female employment in Japan

AbstractThis paper examines the effect of foreign ownership on gender‐related employment outcomes and work practices in Japan. The data indicate that the proportion of females among workers, managers, directors and board members is higher in foreign affiliates than in domestic firms of comparable size operating in the same industry. Foreign affiliates are also more likely to offer flexible working arrangements, telecommuting and childcare subsidies as well as employ foreign workers. These effects are visible almost exclusively in older affiliates. The analysis of foreign acquisitions combining propensity score matching with a difference in differences suggests that increase in the female labour share takes place a few years after the ownership change. All these patterns are in line with the view that it takes time to transplant corporate culture to an overseas affiliate.

Why Do Over-Deviated Firms from Target Leverage Undertake Foreign Acquisitions?

This paper examines how deviation from firms’ target leverage influences their decisions on undertaking foreign acquisitions. Using a sample of 5,746 completed bids by UK acquirers from 1987 to 2012, we observe that over-deviated firms are more likely to acquire foreign targets. Consistent with co-insurance theory, we find that over-deviated firms engage in foreign acquisition deals to relieve their financial constraints and to mitigate their financial distress risk. We also note that foreign acquisitions enhance over-deviated firms’ value and performance, measured by Tobin’s q and return on assets (ROA) respectively. These findings support the view that over-deviated firms pursue the most value-enhancing acquisitions. Overall, this paper suggests that co-insurance effects, value creation and performance improvements are the main incentives for over-deviated firms’ involvement in foreign acquisitions.