Essays on Cross-Border Mergers and Acquisitions, Technology, and Frictional Costs

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Title: Essays on Cross-Border Mergers and Acquisitions, Technology, and Frictional Costs
Author: Lee, Donghyun
Abstract: Foreign direct investment (FDI) has played a major role in the increasing economic globalization of the past couple decades. Cross-border mergers and acquisitions (M & A) is the major source of FDI, particularly for developed countries accounting for as much as two-thirds of FDI. Yet, studies on such cross-border M & A activities are scant in the literature. This dissertation aims at explaining the relationship between cross-border M & A, technology, and frictional costs using both theoretical and empirical analyses. In chapter II, I conduct empirical analysis to determine the relationship between exchange rates and acquisition FDI. I find that depreciation of the host country's currency leads to an increase in acquisition FDI into high-R & D sectors for U.S. inbound acquisition FDI from multiple country sources, but not for inbound acquisition FDI for other various developed countries. In chapter III, I develop an equilibrium model of cross-border M & A and show that the model predicts that firms from a larger country are more likely to acquire in a smaller country when M & A activity is driven by a technology-seeking motive, but the opposite is true when it is driven by a market-seeking motive. I also find empirical evidence that cross-border M & A activity exhibits behavior consistent with this prediction. In chapter IV, I empirically examine the relevance of heterogeneous sector-specific frictional costs using detailed data on worldwide M & A activity. Results show that cultural distance, tradeability, and regulation play an important role in determining heterogeneous frictional costs across different sectors. This dissertation includes unpublished co-authored material.
Date: 2012

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