Foreign Acquisitions: When Do They Make Sense?

Managerial Finance Volume 17, Number 6, 1991

University of Alberta School of Business Research Paper No. 2013-903

Posted: 11 Jun 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: March 10, 1991

Abstract

Why should a firm expand across national frontiers? The costs of operating under different tax systems, coping with different cultural traditions and dealing with multiple bureaucracies are substantial. A new view of international economics called the internalization theory proposes that successful multinationals possess special intangible assets such as a technological lead, a marketing advantage or perhaps superior organizational ability. Our work indicates not only that this is so, but that in the absence of such intangibles a multinational structure may well be a liability. The traditional reasons economists and business managers cite to justify foreign acquisitions (such as the ability to declare profits where the tax rate is lowest, the increased stability gained through international diversification, and the lower labor and raw material costs prevailing in some foreign countries) appear to be minor effects.

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin, Foreign Acquisitions: When Do They Make Sense? (March 10, 1991). Managerial Finance Volume 17, Number 6, 1991; University of Alberta School of Business Research Paper No. 2013-903. Available at SSRN: https://ssrn.com/abstract=2277191

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
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780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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1 Business Link
Singapore, 117592
Singapore

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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