Do foreign mergers and acquisitions boost firm productivity?

Highlights

This paper examines the causal link between foreign acquisitions and firm productivity in the UK.

The productivity of foreign-acquired firms depends on characteristics of acquiring and acquired firms.

Productivity gains are linked to acquisitions by foreign firms operating in industries intensive in R&D.

Productivity gains are less likely when foreign acquirers operate in marketing-intensive industries

Abstract

This paper examines the causal relationship between foreign mergers and acquisitions (M&A) and the productivity of acquired firms using micro-data from the UK over the period 1999–2007. Our results suggest a significant heterogeneity in the total factor productivity (TFP) effects of foreign M&A at the industry level. Overall, we uncover a systematic pattern of post-acquisition TFP effects that is consistent with the most recent theoretical models of firm heterogeneity and cross-border mergers and acquisitions as mode of foreign entry. Furthermore, we find positive aggregate effects on labor productivity due to capital deepening but not due to changes in TFP.