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Acquisitions and Foreign Competition

43 Pages Posted: 10 Oct 2017  

Shweta Srinivasan

SUNY Binghamton; University of Arizona - Department of Finance

Date Written: July 1, 2017

Abstract

I provide evidence on the impact of foreign competition on firms’ propensities to engage in mergers and acquisitions. Using import tariff reductions as an exogenous shock that increases foreign industry competition, I find that affected firms are more likely to make acquisitions following a tariff reduction. Cross-sectional tests show that this association is more pronounced for single segment firms, firms that innovate less, or that are more capital intensive, which suggests this association is stronger for firms which stand to gain more from an acquisition. Moreover, the positive relationship between acquisition likelihood and tariff cuts is less pronounced for financially constrained firms and during times of low capital liquidity, which implies that it is easier for firms with greater access to external capital to respond to increases in foreign competition by making acquisitions. Finally, I find that acquisitions made subsequent to tariff decreases are associated with positive wealth gains for bidder shareholders, indicating that these acquisitions are viewed favorably by market participants.

Keywords: Mergers, Acquisitions, Foreign Competition, Import Tariffs, Corporate Restructuring, Product Markets

JEL Classification: G34, F10, F13, F14, F65

Suggested Citation

Srinivasan, Shweta, Acquisitions and Foreign Competition (July 1, 2017). Available at SSRN: https://ssrn.com/abstract=3049949

Shweta Srinivasan (Contact Author)

SUNY Binghamton ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

HOME PAGE: http://www.shwetasrinivasan.com

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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