Cross-border mergers and hollowing-out

Arbeitspapier

The purpose of our paper is to examine the profitability and social desirability of both domestic and foreign mergers in a location-quantity competition model, where we allow for the possibility of hollowing-out of the target firm. We refer to hollowing-out as the situation where the target firm is shut down following a merger with a domestic or foreign acquirer. Our analysis shows that mergers have ambiguous effects on the profitability of merged firms and on social welfare. Hollowing-out occurs in very few instances in our framework. One such instance is the case of firms located side-by-side in the same cluster and only if it is very costly to transfer the more efficient technology of the acquirer to the domestic target firm. This happens regardless of the origin of the acquirer, domestic or foreign. We also show that there are instances when a cross-border merger with hollowing out is not profitable but it is socially desirable.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Working Paper ; No. 2009-30

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Monopolization; Horizontal Anticompetitive Practices ; Oligopoly and Other Imperfect Markets
• Subject: Economic models ; International topics ; Market structure and pricing ; Fusion ; Übernahme ; Multinationales Unternehmen ; Direktinvestition ; Unternehmensentwicklung ; Wohlfahrtseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Secrieru, Oana ; Vigneault, Marianne
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2009

Further information

• DOI: doi:10.34989/swp-2009-30
• Handle: http://hdl.handle.net/10419/53795
• Last update: 10.03.2025, 11:44 AM CET