Cross-Border Acquisitions and Greenfield Entry: Profitability and Stock Market Value
Research Institute of Industrial Economics (IFN)
Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 3998
This Paper studies cross-border acquisitions and greenfield entry in a multi-firm setting. Acquisition entry is more likely when the acquirer gains a strong position in the product market, relative to greenfield entrants. We also show that such acquisitions might have a low profitability, however. The reason is that the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Moreover, this implies that domestic firms will then sell their assets at a substantially higher price than their reservation price. Implications for stock market values are also derived.
Number of Pages in PDF File: 33
Keywords: FDI, mergers and acquisitions, stock market value
JEL Classification: F23, G34, L13working papers series
Date posted: September 19, 2003
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