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Cross-border acquisitions and restructuring : Multinational enterprises and private equity-firms

Baziki, Selva Bahar ; Norbäck, Pehr Johan ; Persson, Lars LU and Tåg, Joacim LU (2017) In European Economic Review 94. p.166-184
Abstract

An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PE-firms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-firms compete over domestic assets and which incorporates endogenous financial frictions. MNEs’ advantages lie in firm-specific synergies and access to internal capital markets, whereas PE-firms are good at reorganizing target firms. We show that stronger firm-specific synergies, lower restructuring advantages for PE-firms, higher exit costs for PE-firms, better access to internal capital markets, a higher risk premium on lending, higher moral hazard problems, and higher trade costs all favor MNEs over... (More)

An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PE-firms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-firms compete over domestic assets and which incorporates endogenous financial frictions. MNEs’ advantages lie in firm-specific synergies and access to internal capital markets, whereas PE-firms are good at reorganizing target firms. We show that stronger firm-specific synergies, lower restructuring advantages for PE-firms, higher exit costs for PE-firms, better access to internal capital markets, a higher risk premium on lending, higher moral hazard problems, and higher trade costs all favor MNEs over PE-firms. We also present cross-country correlations that are consistent with these predictions.

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author
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Cross-border acquisitions, Institutions, M&As, Private equity, Trade, F23, F65, L13
in
European Economic Review
volume
94
pages
19 pages
publisher
Elsevier
external identifiers
  • scopus:85016157099
ISSN
0014-2921
DOI
10.1016/j.euroecorev.2017.02.012
language
English
LU publication?
no
id
676854b7-1201-414d-b0de-1b4eff2a8489
date added to LUP
2020-01-23 15:50:17
date last changed
2020-03-29 07:49:09
@article{676854b7-1201-414d-b0de-1b4eff2a8489,
  abstract     = {<p>An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PE-firms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-firms compete over domestic assets and which incorporates endogenous financial frictions. MNEs’ advantages lie in firm-specific synergies and access to internal capital markets, whereas PE-firms are good at reorganizing target firms. We show that stronger firm-specific synergies, lower restructuring advantages for PE-firms, higher exit costs for PE-firms, better access to internal capital markets, a higher risk premium on lending, higher moral hazard problems, and higher trade costs all favor MNEs over PE-firms. We also present cross-country correlations that are consistent with these predictions.</p>},
  author       = {Baziki, Selva Bahar and Norbäck, Pehr Johan and Persson, Lars and Tåg, Joacim},
  issn         = {0014-2921},
  language     = {eng},
  month        = {05},
  pages        = {166--184},
  publisher    = {Elsevier},
  series       = {European Economic Review},
  title        = {Cross-border acquisitions and restructuring : Multinational enterprises and private equity-firms},
  url          = {http://dx.doi.org/10.1016/j.euroecorev.2017.02.012},
  doi          = {10.1016/j.euroecorev.2017.02.012},
  volume       = {94},
  year         = {2017},
}