Cherries for sale: The incidence and timing of cross-border M&A

Abstract

International audienceThis paper develops a model of cross-border M&A activity that features firm-level productivity shocks and endogenous export activity. We show that foreign firms will be relatively more attracted to targets in the domestic country that had high productivity levels that induced them to invest in large export networks several years prior to acquisition, but subsequently experienced a negative productivity shock (i.e., cherries for sale). From the theory we derive a dynamic panel binary choice empirical model to predict cross-border M&A activity, and find strong evidence for our hypotheses connecting the evolution of firm-level productivity to the ultimate targets of cross-border acquisitions using French firm-level data

Benefits of foreign ownership: Evidence from foreign direct investment in China

“…Figure 1 shows the average TFP relative to the industrial mean for the foreign and domesticacquired firms, respectively, from two years prior to the acquisition through two years after the acquisition. Since firm TFP is normalized around the industrial mean (at the 2-digit level), positive TFP values in Figure 1 indicate that both domestic-and foreign-acquired firms are more productive 12 Our results are also robust when we include pre-acquisition changes in the leverage and liquidity ratios or replace the export status dummy with the size of exports relative to domestic sales in the logit model. 13 An alternative method used in the literature for controlling for the acquisition year and industry fixed effects is to first match the treatment and control groups in the same acquisition year and industry and then average the treatment effects across acquisition years/industries.…”

“…To address this issue, we also include the growth rate of productivity in the pre-acquisition year as an independent variable in a robustness check. 12 Among these variables, productivity, employment, real wages and real capital per worker are in logs. Dummy variables for the acquisition year and industry (2-digit level) are also added to control for their fixed effects.…”

Cross-border M&As and innovative activity of acquiring and target firms

“…For instance, foreign acquisition targets might use the acquiring firm's existing distribution channels (Guadalupe et al, 2012) or acquirers may choose target firms that have previously invested in export networks (Blonigen et al, 2012) or that possess market-specific capabilities such as marketing expertise (Nocke and Yeaple, 2007).…”

Evidence for the Effects of Mergers on Market Power and Efficiency

“…Of course, the bias could also go the other way, mitigating any positive M&A effect, if firms are more likely to acquire targets with productivity or markups trending downward. Recent evidence by Blonigen et al (2014) suggests that negative trends in these variables may be more likely.…”

“…7 The exceptions of which we are aware are Jaumandreu (2004), which found some efficiency effects from M&A activity in the Spanish banking industry, Braguinsky et al (2015), which examines the effect of acquisitions on productivity and profitability in the Japanese cotton spinning industry, and Kulick (2015), which finds positive effects on both prices and efficiency resulting from horizontal mergers in the concrete industry using output data measured in physical units of quantity. 8 Bertrand and Zitouna (2008) also examine the impact of M&A activity on profits, but use accounting data on earnings, which can be affected by changes in accounting practices after an M&A transaction.…”