Foreign Takeovers of U. S. Establishments

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

Foreign-owned firms and establishments in the United States are different from domestically owned ones even though most of them had originally been domestically owned. Foreign-owned firms and establishments are larger, pay higher wages, have higher labor and multi-factor productivity. They have been steadily increasing their share of the U.S. economy. It is not known whether these foreign-owned firms and establishments are different simply because foreign buyers selected larger, higher-skill, and more productive firms to purchase or because the foreign owners changed the formerly U.S.-owned firms after taking them over by bringing superior management or technology. The latter possibility would have more favorable implications for the impact on the U.S. economy of the rapid growth that has taken place in foreign direct investment in the United States and foreign ownership of U.S. production. The purpose of this study is to answer this question by taking advantage of two relatively new statistical opportunities. One of these is the linking of the Bureau of Economic Analysis (BEA) data on foreign ownership of U.S. firms with the data in the Census Bureau's Economic Censuses and Annual Surveys of Manufactures. The second is the merging of these matched data with the longitudinal files for individual establishments developed by the Center for Economic Studies (CES) of the Bureau of the Census. The longitudinal data identify changes in ownership and the BEA-Census match enables a user to identify which of the ownership changes were switches to foreign ownership. With this identification of foreign takeovers of U.S. establishments, we will ask, first, what characteristics of U.S. establishments determined the choice of foreign takeover targets. We will ask, also, what characteristics, such as nationality and previous involvement in the U.S. market, determined the identity of acquirers, perhaps with different explanations for different industries and different purchasing countries. Secondly, we will ask how the establishments changed after takeover, taking account of their condition at the time of takeover. We will compare their later evolution to that of plants in the same industries, with similar characteristics, that continued in the same ownership and to plants taken over by domestic purchasers.