Foreign Ownership and Firm Performance: Emerging-Market Acquisitions in the United States
Kathryn M.E. Dominguez
This paper examines the recent upsurge in foreign acquisitions of U.S. firms, specifically focusing
on acquisitions made by firms located in emerging markets. Neoclassical theory predicts that, on net,
capital should flow from countries that are capital-abundant to countries that are capital-scarce. Yet
increasingly emerging market firms are acquiring assets in developed countries. Using transaction-specific
acquisition data and firm-level accounting data we evaluate the post-acquisition performance of publicly
traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007.
Our empirical methodology uses a difference-in-differences approach combined with propensity score
matching to create an appropriate control group of non-acquired 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 non-acquired U.S. firms before the acquisition year. In the years
following the acquisition, sales and employment decline while profitability rises, suggesting significant
restructuring of the target firms.
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