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Greenfield versus merger and acquisition FDI: Same wine, different bottles?
Author(s) -
Davies Ronald B.,
Desbordes Rodolphe,
Ray Anna
Publication year - 2018
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12353
Subject(s) - foreign direct investment , business , arbitrage , currency , monetary economics , international economics , quality (philosophy) , database transaction , investment (military) , transaction cost , industrial organization , economics , finance , macroeconomics , political science , philosophy , epistemology , politics , computer science , law , programming language
Relying on a large foreign direct investment (FDI) transaction level dataset, unique both in terms of disaggregation and time and country coverage, this paper examines patterns in greenfield (GF) versus merger and acquisition (M&A) investment. Although both are found to seek out large markets with low international barriers, important differences emerge. M&A is more affected by geographic and cultural barriers and exhibits opportunistic behaviours as it is more sensitive to temporary shocks such as a currency crisis. Further, M&A is more affected by destination factors such as financial development and institutional quality. GF, on the other hand, is relatively more driven by factors such as origin comparative advantage and destination taxes. These empirical facts are consistent with the conceptual distinction made between these two modes, i.e., M&A involves transfer of ownership for integration or arbitrage reasons while GF relies on firms’ own capacities, which are linked to origin country attributes. They also suggest that GF and M&A are likely to respond differently to policies intended to attract FDI.