Picking Cherries or Lemons: A unified theory of cross-border mergers and acquisitions

Date

2017-06-08

Advisors

Journal Title

Journal ISSN

ISSN

Volume Title

Publisher

Wiley

Type

Article

Peer reviewed

Yes

Abstract

This paper provides a theoretical framework that enhances understanding of empirical evidence suggesting that international mergers and acquisitions, a key source of Foreign Direct Investment, seemingly target in-country firms that are at the extremes of the productivity spectrum – either high-productivity firms, so-called ‘cherries’, or low-productivity firms, the ‘lemons’. The framework demonstrates that foreign firms with intermediate inputs seek high-productivity domestic firms, while foreign firms with managerial expertise seek low-productivity domestic firms. We also show that because of the difference in available outside options, high-productivity domestic firms can demand a significantly higher portion of profits in the partnership than low-productivity domestic firms.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

FDI, Mergers and Acquisitions, Firm productivity

Citation

Luong, T.A. (2017) Picking Cherries or Lemons: A unified theory of cross-border mergers and acquisitions. The World Economy,

Rights

Research Institute

Institute for Applied Economics and Social Value (IAESV)