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Innovation and Entrepreneurship Research

Quantifying Productivity Gains from Foreign Investment

We quantify the effect of foreign investment on productivity of acquired firms using a new firm-level database for eight advanced European countries during 1999-2012. Foreign investors target high productivity firms. In order to control for this selection and isolate causal effects, we perform propensity score matching with firm fixed effects and also control for country-sector trends and mean-reversion in productivity. Following foreign acquisition, productivity increases modestly but only after four years, and only when foreign investors buy majority stakes. Our results are driven by foreign acquisitions and not by foreign divestment. The effect of foreign acquisitions on total factor productivity are an order of magnitude smaller in our sample of advanced countries relative to those found for emerging markets.

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Beteiligte Wissenschaftler

Prof. Christian Fons-Rosen, Ph.D. (MPI und Universitat Pompeu Fabra),
Prof. Dr. Sebnem Kalemli-Ozcan (University of Maryland),
Prof. Bent Sorensen, Ph.D. (University of Houston),
Prof. Vadym Volosovych, Ph.D. (Erasmus University Rotterdam)

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