A Model of Heterogeneous Firm Matches in Cross-Border Mergers & Acquisitions

34 Pages Posted: 21 Jul 2018

See all articles by Steven Brakman

Steven Brakman

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Harry Garretsen

University of Groningen

Michiel Gerritse

University of Groningen

Charles van Marrewijk

Utrecht University - School of Economics

Date Written: June 06, 2018

Abstract

In contrast to empirical evidence, recent theories of cross-border mergers and acquisitions (M&As) assume perfect knowledge transfers – from high to low productivity firms – between acquirer and target. Using the Melitz (2003) model of heterogeneous firms, we develop a matching model of cross-border M&As which allows for both perfect and imperfect knowledge transfers, where the latter leads to assortative matching on productivity for firms in cross-border M&As. This is in line with stylized facts (because M&As frequently occur between firms of similar productivity) and in contrast to the proximity-concentration trade-off (in which only the most productive firms have a physical presence in foreign markets). Allowing for M&As raises the firm viability cut-off level, average productivity and welfare in our model. The welfare benefits are weaker for more imperfect knowledge transfers.

Keywords: cross-border merger & acquisitions, knowledge transfers, productivity differences

JEL Classification: F200, L100

Suggested Citation

Brakman, Steven and Garretsen, Harry and Gerritse, Michiel and van Marrewijk, Charles, A Model of Heterogeneous Firm Matches in Cross-Border Mergers & Acquisitions (June 06, 2018). CESifo Working Paper Series No. 7083. Available at SSRN: https://ssrn.com/abstract=3214410

Steven Brakman (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 3746 (Phone)
+31 50 363 3730 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Harry Garretsen

University of Groningen ( email )

Michiel Gerritse

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Charles Van Marrewijk

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
*31-(0)30-2539810 (Phone)

HOME PAGE: http://www.charlesvanmarrewijk.nl

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