20. Mergers (1): introduction

This chapter briefly discusses the subject of merger control. Merger control is an important component of most, though not all, systems of competition law. Merger control has been under particular scrutiny in recent years, partly as a result of the rapid development of digital technologies and the emergence of powerful digital platforms. Separately there has been a certain backlash against the trend towards the globalisation of markets, and national governments, as well as the EU, have considered whether controls over the foreign acquisition of key industries are required, and whether the basic test of merger control – would a merger be harmful to competition? – should be supplemented by broader provisions enabling ‘the public interest’ to be taken into account. Against this background, the chapter begins by explaining what is meant by a ‘merger’ or ‘concentration’, the term used by the EU Merger Regulation (EUMR). It then proceeds to describe the different effects of mergers between independent firms from within and different production levels, the proliferation of systems of merger control, why firms merge, and the purpose of merger control. The final section of the chapter deals with how to design a system of merger control when a country decides, as a matter of policy, to adopt one.

Wage gains from foreign ownership: evidence from linked employer–employee data

We compare the wages of skilled workers in multinational enterprises (MNEs) versus domestic firms, the earnings of domestic firm workers with past, future and no MNE experience, and estimate how the presence of ex-MNE peers affects the wages of domestic firm employees. The analysis relies on monthly panel data covering half of the Hungarian population and their employers in 2003–2011. We identify the returns to MNE experience from changes of ownership, wages paid by new firms of different ownership, and the movement of workers between enterprises. We find high contemporaneous and lagged returns to MNE experience and significant spillover effects. Foreign acquisition has a moderate wage impact, but there is a wide gap between new MNEs and domestic firms. The findings, taken together, suggest that MNE employees accumulate partly transferable knowledge, valued in the high-wage segment of the local economy that is connected with the MNEs via worker turnover.

Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition

This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.

Strong alien or weak acquaintance? The effect of perceived institutional distance and cross-national uncertainty on ownership level in foreign acquisitions

Purpose Focusing on the direction of foreign acquisition, this study aims to differentiate the effect of institutional distance on the level of ownership. The authors identify several theoretical and methodological issues that might account for the inconsistencies in the literature and provide remedies accordingly. Specifically, the authors propose perceived institutional distance as a conceptualization of distance that controls for asymmetric uncertainty. Design/methodology/approach The authors test the framework with ordinary least squares regression for a sample of 14,192 firm-entries in 115 target countries over 2007–2017. Findings The authors find that institutional distance shows a negative effect on equity ownership in all-inclusive global samples, while there are two imbalanced opposite effects if direction is considered. This casts doubt on the validity of studies that ignore direction. The authors suggest that multinational enterprises entering countries with lower-quality institutions tend to perceive more pronounced distance effects than those expanding the other way around. Hence, the authors argue that “perceived institutional distance” better explains the functional role of distance than simple distance. Practical implications This study better delineates the link between distance and uncertainty and enhances managerial insights for entry mode selection. For policy-making purposes, the authors also show that improvement in institutional quality has a different effect on foreign resource commitment in developed and developing countries. Originality/value To the best of authors’ knowledge, this is the first study that considers both directionality and imbalance in institutional distance and proposes a measure to control for non-linear asymmetric relationship between distance and ownership. The authors extend the institutional theory and show the superiority of perceived institutional distance in predicting ownership implications.

CFIUS issues final regulations on national security review of foreign investments in the United States under FIRRMA: broader reach, mandatory filings, and limited exceptions

Purpose The article examines the sweeping changes to the review process undertaken by Committee on Foreign Investment in the United States (CFIUS) as a result of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The Article specifically reviews the long-awaited final sets of regulations, effective as of February 13, 2020, and analyzes their impact on the CFIUS process, as well as considers the implications of FIRRMA for parties to foreign acquisition, control, and investment transactions. Design/methodology/approach The Article begins with an overview of the CFIUS framework and a general explanation of FIRRMA. It then moves to an analysis of FIRRMA and the resulting changes to the prior CFIUS regime. The Article concludes with general considerations and provides recommendations for parties who may find themselves analyzing the potential applicability of CFIUS to foreign acquisition and investment transactions. Findings FIRRMA resulted in significant changes to the existing CFIUS regulatory framework. Practical implications Parties should learn the CFIUS changes as a result of FIRRMA, including the new mandatory filing requirements as well as implications for non-controlling investment transactions. Parties should include CFIUS analysis and planning in the earliest stages of deal planning and due diligence. Originality/value The article provides an in-depth review of the changes to CFIUS resulting from FIRRMA. The changes to the existing CFIUS landscape have resulted in new mandatory filing requirements and expanded jurisdiction over non-controlling investment and real estate transactions, which are discussed in the article.