Foreign acquisitions, ownership changes, and exports

Abstract

We develop a three-country model to examine the effects of foreign acquisitions on the decision of target firms to export (to a third market). We show that foreign acquisitions may raise or reduce the targets’ probability to export (extensive margin), depending on whether the targets have exports before the acquisitions. Due to ownership changes in the target firms, three possible channels through which the acquirers (new owners) alter the targets’ (previous owners) export decision are identified: fixed-cost jumping, technology transfer, and global market reorganization. We then use firm-level data of foreign acquisitions on Chinese firms from 2000 to 2006 to test the main predictions of the model. We find evidence that foreign acquisitions raise (reduce) the Chinese target firms’ probability of exporting to a third market if the targets do not (do) have exports to that market before the acquisitions. Technology transfer is not observed. Evidence implies that fixed-cost jumping is used to raise the targets’ export extensive margin, while global market reorganization is a key motive for the acquirers to reduce the targets’ export extensive margin.