DP3998 | Cross-Border Acquisitions and Greenfield Entry: Profitability and Stock Market Value

Publication Date

23/08/2003

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

This Paper studies cross-border acquisitions and greenfield entry in a multi-firm setting. Acquisition entry is more likely when the acquirer gains a strong position in the product market, relative to greenfield entrants. We also show that such acquisitions might have a low profitability, however. The reason is that the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Moreover, this implies that domestic firms will then sell their assets at a substantially higher price than their reservation price. Implications for stock market values are also derived.