Picking Cherries or Lemons: A unified theory of cross-border mergers and acquisitions
This paper provides a theoretical framework that enhances understanding of empirical evidence suggesting that international mergers and acquisitions, a key source of Foreign Direct Investment, seemingly target in-country firms that are at the extremes of the productivity spectrum – either high-productivity firms, so-called ‘cherries’, or low-productivity firms, the ‘lemons’. The framework demonstrates that foreign firms with intermediate inputs seek high-productivity domestic firms, while foreign firms with managerial expertise seek low-productivity domestic firms. We also show that because of the difference in available outside options, high-productivity domestic firms can demand a significantly higher portion of profits in the partnership than low-productivity domestic firms.
The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.
Citation : Luong, T.A. (2017) Picking Cherries or Lemons: A unified theory of cross-border mergers and acquisitions. The World Economy,
Research Institute : Institute for Applied Economics and Social Value (IAESV)
Peer Reviewed : Yes