The Perfect Match: Assortative Matching in International Acquisitions

This paper empirically characterizes the matching between firms in domestic and cross-border mergers and acquisitions (M&A). The analysis is guided by a theoretical framework constructed following the premises of the new trade theory. It assumes that firms are heterogeneous, within the industry and country of origin, in two characteristics: productivity and size. By a revealed preference argument, if an acquisition takes place, it signals the existence of synergies between the characteristics of two firms. We estimate the sources of synergies between merged firms based on data on domestic and international M&A for five large European countries, France, Germany, Italy, U.K., and Spain, collected by Zephyr between 1997 and 2011. The estimated model is used to compute the effect of FDI on the resulting host country productivity and size distribution of firms.