Foreign Takeover Research Articles

Corporate Governance and Cross-Border Acquiree Returns

The theory of corporate governance suggests that managers of poorly governed firms are more likely to make poor investment decisions, and the evidence on high antitakeover provision (ATP) firms is consistent. We study the e ffect of domestic and foreign takeovers by U.S. fi rms and find that high-ATP bidders tend to pay relatively high premiums for either targets. While this suggests that these firms make poor decisions, high-ATP bidders also experience relatively high event study returns at times of foreign takeover news. This contradicts the findings of Masulis et al. (2007) for domestic takeovers.

Foreign Acquisitions, Plant Survival, and Employment Growth

This paper analyses the effect of foreign acquisition on survival probability and employment growth of target plant using data on Swedish manufacturing plants during the period 1993-2002. An improvement over previous studies is that we take into account firm level heterogeneity by separating the targeted plants into those within Swedish MNEs, Swedish exporting non-MNEs, and purely domestic firms before foreign takeover. The results, controlling for possible endogeneity of the acquisition dummy using an IV and propensity score matching approach suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter. The effect differs depending on whether the acquisition is horizontal or vertical. We also find robust positive employment growth effects only for exporters, and only if the takeover is vertical, not horizontal.

Foreign Ownership and Corporate Performance: The Czech Republic at EU Entry

Does foreign ownership improve corporate performance or do foreign firms merely select more productive targets for takeover? Do workers benefit from foreign acquisitions? We answer these questions based on comparing the before/after change in several performance indicators of Czech firms subject to foreign takeover after 1997, i.e., after the initial waves of privatization were completed, with the corresponding performance change of matched companies that remain domestically owned until 2005. We find that the impact of foreign investors on domestic acquisitions is significantly positive only in non-exporting manufacturing industries, while it is small in both services and manufacturing industries competing on international markets.

The Impact of FDI on Innovation in Target Firms

This paper contributes to the ongoing debate on the welfare effects of foreign direct investment by investigating the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and medium-sized German firms. After controlling for endogeneity and selection bias, it is found that foreign takeovers have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as the share of sales from product innovations is not significantly affected by a foreign takeover for a given amount of innovation efforts. Hence, the estimation results do not show any evidence of significant technology spillovers through foreign direct investment in form of a higher innovation success.

Foreign Takeovers and Wages in Hungary

This study investigates the wage premium that foreign takeover firms pay for a type of worker on top of the wage before takeover. We apply Hungarian employee-employer matched data from 1992 until 2001, and find a nonlinear wage premium profile before and after a foreign takeover. Takeover targets do not pursue a different wage policy before ownership change compared to other indigenous firms. Then, there is a hike in the wage premium during the takeover year. Moreover, there is gradually building up a wage premium over the following years after the takeover. The later stylized fact helps discriminating bargaining theories of the foreign-investor wage premium from technology spillover theories.

The globalisation of General Principle 7: transforming the market for corporate control in Australia and Europe?

The integration of national financial markets over the past 30 years has resulted in a globalised market for corporate control which has increased both the opportunities for companies to fund acquisitions and the possibility of being acquired. Takeovers and mergers have, as a result, become a matter of some concern for governments, as they try to encourage the development of financial markets but also deal with the consequences of a globalised market for corporate control, where even companies regarded as national champions are within the reach of a foreign takeover. In the course of the last decade General Principle No 7 of the UK Takeover Code, that shareholders should decide the outcome of a takeover bid, has been adopted in many jurisdictions around the world and has formed the heart of the EU Directive on Takeovers. The Principle is however a controversial one, as its adoption is often viewed in civil law jurisdictions as an attack on a core part of a social market system. This has been particularly evident in the debate on the EU Directive on Takeovers. A number of common law heritage countries have also based their takeover regime around General Principle No 7 and many of these common law heritage counties have similarities with social market systems, in that they have less significant stock exchanges than the UK, the make up of their shareholding base is more concentrated and employment protections are more extensive. A central jurisdiction in that overlap is Australia, with exactly this combination. The purpose of this paper is to examine the historical effect of introducing UK takeover principles into the Australian system, by creating an empirical data set of takeovers of Australian listed companies covering the period before and after those UK-based principles were introduced. In doing so the paper found that factors such as concentrated ownership, capital controls and protective labour law have significant effects on the market for corporate control. There was no transforming effect evident in adopting an anti-managerial pro-shareholder takeover regime. As such, the fear that the adoption of a standardised EU-wide takeover Directive, along the lines of the UK Panel on Takeovers and Mergers' shareholder-oriented General Principle 7, would have a negative transforming effect on social market systems appears, on the Australian evidence, to be overblown, while other key features of such systems, particularly concentrated ownership and protective labour laws, remain in place.

National Champion versus Foreign Takeover

We analyze an oligopolistic market where a domestic and a foreign firm are engaged in a takeover battle for a domestic competitor. Any merger or acquisition (M&A) must be approved by a welfare maximizing domestic competition agency which may or may not be prone to “economic patriotism”. A patriotic government does not (fully) count wealth of domestic shareholders as relevant producer surplus if this wealth has been generated by selling a domestic firm abroad. We show that globalization (decreasing transport costs) has a different impact on the equilibrium ownership structure of that industry, depending on the type of government. With an unbiased competition agency we find that the foreign takeover is more likely to occur the higher the level of trade openness is. However, when the domestic government is biased we find that globalization reinforces the case for promoting national champions. This may explain why some countries have recently spent considerable effort to deter foreign attempts to acquire domestic firms.

Introduction—The EU and Its “Constitution”: Public Opinion, Political Elites, and Their International Context

The European Union is going about its regular business. It is putting forth proposals to keep the Doha Round alive, continuing to negotiate a major trade agreement with Mercosur in South America, keeping peace-keeping troops in Bosnia and Herzegovina, spending development aid in numerous poor countries, financially supporting the Palestine Authority while giving Israel preferential access to the EU market, investigating Microsoft's business practices, and battling over the reach and scope of an ambitious new legislative attempt to regulate the chemical industry. The EU Greenhouse Trading Scheme, the largest greenhouse emissions trading scheme in the world, is up and running. The European Central Bank is making monetary policy decisions while the euro makes up almost 20% of central banks' foreign currency holdings. The European Medicines Agency (EMEA) has called for suspending the sale of the children's vaccine Hexavac. The European Court of Justice, for its part, has recently declared illegal a high profile Italian law designed to prevent foreign takeover of Italian energy companies. And the commissioner for Health and Consumer Protection is playing a leading role in the EU's response to the threat of a pandemic of avian bird flu.

Acquisition FDI and the Export Intensity of Multinational Firms

This paper investigates the impact of acquisition FDI on exporting intensity in UK manufacturing. A quasi-likelihood estimation method is used, and the empirical estimates point to the following conclusions: (i) UK firms with higher exporting intensity are more likely to be foreign takeover targets; (ii) US acquired firms increase their exporting intensity, consistent with the idea that acquisition FDI is used as a platform for serving the wider EU market (iii) Firms acquired by European multinationals significantly decrease their export-orientation, suggesting targeting of the domestic market post-takeover; (iv) The exporting propensity of non-US and non-EU multinationals exhibits no significant change.

Technology Transfer from Acquisition FDI and the Absorptive Capacity of Domestic Firms: An Empirical Investigation

This paper seeks to establish the role of absorptive capacity in technology transfer from acquisition FDI in U.K. manufacturing. It finds that the rate of productivity change following a foreign take-over is higher the higher the pre-acquisition productivity level of the acquired firm, indicating the importance of absorptive capacity. However, beyond some critical level of initial productivity, the rate of technology transfer due to foreign acquisition starts to decline. It seems that U.K. acquisition targets that had been operating nearer the domestic technology frontier have less to gain from their association with foreign multinationals.

The Transformation of Ownership Policy and Structure in Sweden: Convergence towards the Anglo-Saxon Model?

We investigate the dramatic transformation of ownership policies and ownership structure in Sweden during the postwar period. After WWII, Swedish ownership policies were guided by a socialist vision where the ultimate goal was abolition of private ownership. These policies came to an end in the early 1980s. Since then a large number of Swedish firms have been acquired by foreign owners or merged with foreign firms and the foreign ownership share on the Swedish Stock Exchange has increased rapidly. A central question is whether this fast transformation is merely a logical consequence of current globalization, or whether this tendency has been reinforced by economic policies vis-a-vis the business sector in Sweden. We show that until the late 1980s, Swedish economic policy – aimed at discouraging wealth accumulation among households and favoring institutional ownership and debt financing – effectively precipitated the rapid takeover of the Swedish business sector by foreign owners that gained momentum in the 1990s. Policy measures intended to create a system of “capitalism without capitalists” can be said to have “packaged” large Swedish corporations in terms of ownership and financing structure, so that foreign takeover was facilitated. The article ends with a discussion as to whether the dramatic change in ownership structure in the Swedish business sector may result in the demise of the old corporatist model of industrial relations, giving way to a new trend towards a liberal market economy of the current Anglo-Saxon variety. JEL Classification: M13, N24, O38, P16.

Foreign Firms and Indonesian Manufacturing Wages: An Analysis with Panel Data

This article examines the effect of foreign direct investment (FDI) on wages in Indonesian manufacturing. An econometric analysis of a panel of plants between 1975 and 1999 finds that both foreign ownership throughout the period and foreign takeover resulted in higher wages relative to domestically owned plants. The wage effects for white‐collar employees were typically around twice those for blue‐collar employees. The effect of foreign ownership on wages differed among sectors but was always positive.

Patterns of Agrarian Transition

Karen MacoursUniversity of California, Berkeley, and Katholieke Universiteit LeuvenJohan F. M. SwinnenEuropean Commission and Katholieke Universiteit LeuvenI. IntroductionEconomic reforms have induced important output and productivity changesin the agricultural sectors of transition countries (TCs). There are, however,large differences between the countries in terms of the direction and themagnitude of these changes. For example, agricultural output increased con-siderably in the East Asian TCs, while there was a large output fall in theCentral and East European countries (CEECs) and the former Soviet Union(FSU) during transition (fig. 1).

Life duration of foreign multinational subsidiaries: Evidence from UK northern manufacturing industry 1970–93

Duration analysis is employed to examine the survival of 252 foreign manufacturing plants in the UK Northern region during 1970–93. Contrary to expectations, the hazard function is approximately inverse quadratic rather than monotonic decreasing. Greenfield entrants face a lower risk of failure than acquisition entrants, particularly early in life. Acquisitions of older plants exhibit stronger survival than acquisitions of recently established plants, so that the age of (indigenous) acquired plant at the point of foreign takeover appears to matter to the survival of acquisition entrants. Plant size and industrial concentration also emerge as important. Home country of parent firm and location within region are unimportant. Consistent with the inverse U-shaped hazard function, the lognormal regression model provides a reasonably satisfactory fit to the data, certainly tighter than the Weibull model.

Selling privatization politically

The number of privatization transactions occurring in the world continues to grow apace. Predictions are that over $6 trillion in privatization assets will be sold over the next 20 years. 1 And while the academic debate continues, practitioners continue to garner lessons on how to overcome both technical and political obstacles to implementing privatization transactions. The emerging lessons indicate that it is possible to achieve considerable efficiency and welfare gains from privatization. The real challenges are in finding creative mechanisms for overcoming the political impediments to privatization. The author analyzes the shift in focus from whether efficiency gains are possible with privatization to how to distribute the benefits. Recent innovations to address political constraints are analyzed, such as the greater use of markets to assess the value of firms, the use of giveaways to garner political support, and the array of instruments available to appease nationalistic fears of foreign takeover.

Market dominance and antitrust policy

Market dominance - encompassing single firm dominance, overt and tacit collusion, mergers and vertical restraints - raises many complex analytical and policy issues, all of which continue to be the subject of theoretical research and policy reform. This second edition of a popular and comprehensive text extends the arguments and combines an analysis of the issues with a discussion of actual policy and case studies. This new edition addresses the recent fundamental changes in antitrust law, especially in the UK and the EU, and reviews some high profile and controversial cases such as the Boeing-McDonnell Douglas merger and the Microsoft monopoly. The author moves on to deal with several unresolved questions including the conflicts between trade and antitrust policy, the foreign take-over of domestic assets and extra-territorial claims made by certain countries. Market Dominance and Antitrust Policy will be of considerable value to students and scholars of economics, law and business, as well as researchers, policymakers and practitioners with an interest in competition policy and international trade.

The Foreign Takeover of the Spanish Automobile Industry: A Growth Analysis of Internationalization

LAGENDIJK A. (1995) The foreign takeover of the Spanish automobile industry: a growth analysis of internationalization, Reg. Studies 29, 381–393. As an alternative to the transaction-based explanations, internationalization of production can be conceived as the outcome of industrial growth with new production areas emerging from international investments as ‘growth peripheries’. This paper discusses the value of growth theory for the study of internationalization and examines a particular case of growth-periphery, i.e. the rise of the Spanish automobile industry. The results point at the significance of the industrial level to explain the foreign takeover and growth of production in Spain; however, the role of the individual business strategies of the key players in the production system, notably the assembly firms, cannot be ignored. LAGENDIJK A. (1995) Le rachat etranger de l'industrie automobile espagnole: une analyse de la croissance de l'internationalisation, Reg. Studies 29, 381–393. A la difference...

Does the market react differently to domestic and foreign takeover announcements? Evidence from the U.S. chemical and retail industries

This paper examines shareholder wealth gains from domestic and foreign takeover announcements in the U.S. chemical and retail industries. Contrary to results in several recent papers, these data indicate there is no significant difference in within industry mean takeover premia levels. There is evidence, though, that the sensitivity of takeover premia levels to standard transaction characteristics does differ across buyers: Foreign investors do pay more than domestic investors in hostile transactions, but pay less when there are rival bidders. The results indicate the market's reaction to buyer nationality is closely tied to the transaction's characteristics.

An analysis of foreign takeovers in the United States

AbstractUsing a sample of 96 US companies taken over by foreign companies during the period 1975‐87, we assess foreign takeovers in two stages: pre‐takeover and takeover. We find evidence that foreign firms target US firms whose operations are related to their own operations and that have low market‐to‐book ratios, suggesting foreign bidders acquire firms that provide a greater opportunity for market entry and synergistic gains. The synergistic gains appear to result from the foreign buyer using its own intangible assets (e.g. managerial skills) to improve the target. We also find that foreign takeover activity is aimed primarily at US industries that themselves make high levels of foreign direct investments, implying that the bidders use takeovers as a quick way to counteract rival firms' moves. We find evidence that foreign takeovers take place in relatively mature, low‐growth industries and that foreign targets are, on average, smaller than the non‐targets. The wealth effect on the announcement of a takeover is significantly higher for foreign takeovers than for takeovers by domestic firms. Also, we find that foreign bidders pay a slightly higher premium for targets whose operations are related to their own.

U.S. Ceramics Markets to Grow Modestly While Foreign Takeover of U.S. Companies Continues

U.S. Ceramics Markets to Grow Modestly While Foreign Takeover of U.S. Companies Continues