Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: This paper studies the effect of foreign acquisition on wages and total factor productivity (TFP) in the years following a takeover by using unique detailed firm-level data for Sweden for the period 1993-2002. The paper takes particular account of the potential endogeneity of the acquisition decision (for example due to “cherry picking”) by implementing an instrumental variable approach and propensity score matching with difference-in-difference estimation technique. Moreover, in line with recent literature on firm heterogeneity in international trade, this paper allows for the acquisition effect to differ depending on whether the targeted firms were domestic multinational or non-multinationals before the foreign takeover. This paper also allows for the acquisition effect to differ depending on whether the acquisition is horizontal or vertical. The result shows that foreign acquisition has no effects on overall, skilled or less-skilled wage growth neither in targeted Swedish MNEs nor in targeted Swedish non-MNEs and neither if the acquisition was motivated by vertical or horizontal motives. However, the results indicate that both targeted Swedish MNEs and non- MNEs have better growth in TFP after vertical foreign acquisition only but no such impact from horizontal foreign acquisition

Keywords: heterogeneity; multinational enterprises; acquisitions; wage differentials; productivity; matching; difference-in-difference

JEL-codes: F23; J31; L23

32 pages, January 1, 2010

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