Foreign Acquisition and Divestiture in Low and Middle Income Countries
Abstract:What are characteristics of firms before and after they are acquired? What are characteristics of firms before and after they are divested? What do foreign-owned firms that will subsequently be sold look like compared to foreign firms that remain in foreign hands? How do domestically owned firms that are subsequently acquired by foreigners compare with domestic firms that remain in domestic hands? This paper addresses these questions with panel data from the World Bank’s Enterprise Surveys for a large number of transition and developing countries. Results suggest that foreign firms do not engage in cherry-picking of more productive domestic firms. Divested firms experience a rise in productivity, after initially underperforming. After acquisition, firms are much more likely to be exporters and access foreign input markets. These characteristics fall after a divestiture, however. Overall, the results are encouraging for policy makers with respect to the benefit of policies aimed at attracting more foreign investment.
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