We formulate a knowlegde--based model of direct investment through
mergers and acquisitions. M&As are realized to create comparative
advantages by exploiting international synergies and appropriating
local technology spillovers requiring geographical proximity, but
can also represent a strategic response to the presence of a multinational
rival. The takeover fee paid tends to increase with the strength of
local spillovers which can thus work against multinationalization.
Seller's bargaining ...
We formulate a knowlegde--based model of direct investment through
mergers and acquisitions. M&As are realized to create comparative
advantages by exploiting international synergies and appropriating
local technology spillovers requiring geographical proximity, but
can also represent a strategic response to the presence of a multinational
rival. The takeover fee paid tends to increase with the strength of
local spillovers which can thus work against multinationalization.
Seller's bargaining power increases the takeover fee, but does not
influence the investment decision. We characterize losers and winners
from multinationalization, and show that foreign investment stimulates
research but could result in a synergy trap reducing multinationals'
profits.
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