Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81339
Authors: 
Bertrand, Olivier
Nilsson Hakkala, Katariina
Norbäck, Pehr-Johan
Persson, Lars
Year of Publication: 
2008
Series/Report no.: 
IFN Working Paper 772
Abstract: 
We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisition-investment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model – that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs – are consistent with the data.
Subjects: 
FDI
M&A
Multinational firms
R&D
JEL: 
F23
L10
L20
O30
Document Type: 
Working Paper

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