Cross‐border acquisitions and host country competitiveness

Abstract

We investigate the competitive effects of cross‐border takeovers and find that following the acquisitions, the competitiveness of cross‐border targets improves. The results for industry rivals, however, are mixed. Rivals of targets of cross‐border acquisitions experience improvements in their competitive position in the long term, while at the same time, their growth and market share suffer. These acquisitions lead to a shifting of market share from rivals to cross‐border targets, which is suggestive of increased industry concentration. Cross‐border acquisitions also enhance the host country's financial market development, and lead to increases in innovation in the host country. Overall, our results cast some doubts on the often pessimistic view of foreign takeovers held by some politicians that these deals are bad for the host country.

The impact of economic nationalism in Europe on the returns to rivals of cross‐border M&A bids

“…Model 2 in Table 6 shows that on takeover announcement, the coefficient for the target CAR variable is 0.114, which is significantly different from zero. This rejects hypothesis 1 and is consistent with prior literature (Eckbo, 1983, 1985—for domestic MA Otchere & Oldford, 2018—for cross‐border M&A) that rival firms to a target, on average, benefit in a takeover bid. The other control variables are largely insignificant, with a few notable exceptions.…”

“…The overall sectoral losses are also consistent with politicians’ biases highlighted by Seabright (2005), which include a tendency to support high‐tech sectors irrespective of the country's comparative advantage, failure to account for the impact of favoring one firm on the other firms and a lack of willingness to let poor investments fail, which is an important part of innovation and discovery. The overall sectoral losses at bid failure are also consistent with Otchere and Oldfeld (2018) who find that the cross‐border M&A activity benefits the sector and country by making them more competitive despite short‐term pressure on rivals’ margins.…”

“…Target firms gain through a lower cost of capital that comes with improved investor protection and acquirers benefit by sharing the surplus created by improved governance of the target. In addition, Otchere and Oldford (2018) find that cross‐border M&A improve the competitiveness of a country as well as of the rivals of the target firm even though the rivals lose market share to the resulting merged firm. This is due to rivals reducing their margins and losing in the short term but also benefiting from spillover effects from technology transfers as well as a “kick‐in‐the‐arm” effect.…”

“…The impact on rivals is less certain. While the bulk of the literature (de Bodt & Roll, 2014;Eckbo, 1983Eckbo, , 1985Eckbo & Weir, 1985;Mitchell & Mulherin, 1996;Otchere & Oldford, 2018) supports a net contagion effect implying that rivals' stock prices should also show significant gains in reaction to the announcement, others (Bradley et al, 1983(Bradley et al, , 1988Maksimovic & Phillips, 2001) show the presence of a competitive effect brought about by a consolidation of power in the sector. In addition, Bley and Madura (2003) document inter-country effects indicating that greater integration since the introduction of the euro has led to spillover effects to rivals in other countries.…”

What are the outcomes of emerging markets mergers and acquisitions Evidence from Turkey

“…Bertrand and Zitouna (2008) observed improvements in productivity. Similarly, Otchere and Oldford (2018) demonstrated that the competitiveness of target firms increased following an acquisition.…”