DP3998 Cross-Border Acquisitions and Greenfield Entry: Profitability and Stock Market Value

Author(s):	Pehr-Johan Norbäck, Lars Persson
Publication Date:	August 2003
Keyword(s):	FDI, mergers and acquisitions, stock market value
JEL(s):	F23, G34, L13
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=3998

This Paper studies cross-border acquisitions and greenfield entry in a multi-firm setting. Acquisition entry is more likely when the acquirer gains a strong position in the product market, relative to greenfield entrants. We also show that such acquisitions might have a low profitability, however. The reason is that the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Moreover, this implies that domestic firms will then sell their assets at a substantially higher price than their reservation price. Implications for stock market values are also derived.