Should R&D Champions be Protected from Foreign Takeovers?

Arbeitspapier

We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition-investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model – that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs – are consistent with the data.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFN Working Paper ; No. 772

Classification and Topics

• Classification: Wirtschaft ; Multinational Firms; International Business ; Market Structure, Firm Strategy, and Market Performance: General ; Firm Objectives, Organization, and Behavior: General ; Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
• Subject: FDI ; M&A ; Multinational firms ; R&D ; Betriebliche Forschung ; Übernahme ; Multinationales Unternehmen ; Direktinvestition ; Schweden

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bertrand, Olivier ; Nilsson Hakkala, Katariina ; Norbäck, Pehr-Johan ; Persson, Lars
• Event: Veröffentlichung
• (who): Research Institute of Industrial Economics (IFN)
• (where): Stockholm
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/81339
• Last update: 10.03.2025, 11:44 AM CET