Multinational Enterprises, Cross-Border Acquisitions, and Government Policy

23 Pages Posted: 7 Jan 2009

See all articles by Gautam Bose

Gautam Bose

UNSW Australia Business School, School of Economics

Sudipto Dasgupta

Chinese University of Hong Kong and CEPR

Arghya Ghosh

UNSW Australia Business School, School of Economics

Date Written: October 31, 2008

Abstract

This paper analyzes the optimality of policy specifications used to regulate the acquisition and operation of local firms by multinational enterprises (MNE). We emphasize the consequence of such regulation on the price of the domestic firm in the market for corporate control. We show that it is optimal to impose ceilings on foreign ownership of domestic firms when the government's objective is to maximize domestic shareholder profits. While the optimal ceiling is high enough for the MNE to gain control of the domestic firm, it nevertheless influences the price that the MNE must pay for the domestic firm's shares to the advantage of the domestic shareholders. Restrictions on transfer pricing are either irrelevant or strictly suboptimal. The consequences of alternative specifications of the government's objective function are also analyzed.

Keywords: Acquisition, Control, Multinational Enterprises, Transfer pricing

JEL Classification: F23

Suggested Citation

Bose, Gautam and Dasgupta, Sudipto and Ghosh, Arghya, Multinational Enterprises, Cross-Border Acquisitions, and Government Policy (October 31, 2008). UNSW Australian School of Business Research Paper No. 2008 ECON 22, Available at SSRN: https://ssrn.com/abstract=1324105 or http://dx.doi.org/10.2139/ssrn.1324105

Gautam Bose

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Sudipto Dasgupta

Chinese University of Hong Kong and CEPR ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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