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Should RD Champions be Protected from Foreign Takeovers?

Author

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  • Nilsson Hakkala, Katariina
  • Bertrand, Olivier
  • Norbäck, Pehr-Johan
  • Persson, Lars
Abstract
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 acquisitioninvestment-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. JEL classification: F23, L10, L20, O30

Suggested Citation

  • Nilsson Hakkala, Katariina & Bertrand, Olivier & Norbäck, Pehr-Johan & Persson, Lars, 2008. "Should RD Champions be Protected from Foreign Takeovers?," Discussion Papers 459, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:459
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    File URL: https://www.doria.fi/handle/10024/148449
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    References listed on IDEAS

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    2. Bertrand, Olivier, 2009. "Effects of foreign acquisitions on R&D activity: Evidence from firm-level data for France," Research Policy, Elsevier, vol. 38(6), pages 1021-1031, July.

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    More about this item

    Keywords

    FDI; MA; RD; Multinational Firms; International comparisons; Kansainväliset vertailut; Labor market and policies promoting economic growth; Työmarkkinat ja kasvua tukeva politiikka;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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