Foreign Ownership and Firm Performance: Emerging Market Acquisitions in the United States

This paper examines the recent upsurge in foreign direct investment by emerging market firms into the United States. Traditionally, direct investment flowed from developed to developing countries, bringing with it superior technology, organizational capital, and access to international capital markets, yet increasingly there is a trend toward "capital flowing uphill" with emerging market investors acquiring a broad range of assets in developed countries. Using transaction-specific information and firm-level accounting data, the paper evaluates the operating performance of publicly traded U. S. firms that have been acquired by firms from emerging markets over the period 1980-2006. The empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of nonacquired firms. The results suggest that emerging country acquirers tend to choose U. S. targets that are larger in size (measured as sales, total assets, and employment) relative to matched nonacquired firms. In the years following the acquisition target firm sales and employment decline while profitability rises compared with matched nonacquired firms, suggesting significant restructuring of the target firms. [JEL F21, F37, G34] IMF Economic Review (2012) 60, 1-42. doi:10.1057/imfer.2012.1