Effects of Foreign Takeovers

In this empirical paper I address the e ects of international mergers and acquisitions (M&A) on the acquired rms. International direct investments in the home country are usually welcomed and considered to be bene cial for growth, employment, productivity and technological progress. This is mostly unquestioned for green eld investments, i.e. the case when a foreign multinational rm sets up a new a liate. But a majority of foreign direct investment (FDI) projects takes the form of mergers and acquisitions (M&A). This kind of inward FDI is much more critically debated. The focal point of this paper is the development of domestic German rms that are subject to a foreign takeover regarding employment and productivity. For this purpose, I use a comprehensive German micro-level dataset which includes all industries as well as rms from all size categories and all German regions. The sample covers the years from 2000 to 2007. A propensity score matching approach combined with a di erence-indi erence estimator is applied. Contrary to a naive comparison between foreign-owned rms and domestic rms or a comparison between rm characteristics before and after a foreign takeover, this econometric approach ensures that the causal e ects are isolated. The main results are the following: Foreign owned rms are larger and more productive than domestic ones. Mostly rms with below average productivity (lemons) as well as rms with a relatively high productivity (cherries) are acquired. Market development motives seem to play an important role for foreign acquisitions. Concerning the e ects of foreign takeovers, a descriptive analysis cannot nd unambiguous e ects of foreign takeovers. The propensity score matching estimator con rms this nding and detects neither positive nor negative signi cant e ects of foreign takeovers.