We provide facts showing that in service markets: (i) restrictions on foreign direct investment (FDI) are under reform, (ii) cross-border Mergers & Acquisitions dominate as the entry mode of FDI, and (iii) there is often a high market concentration. Based on these facts, we present a model for...

Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an...

We find that reduced foreign corporate taxes may lead to inefficient foreign acquisitions if complementarities between foreign and domestic assets are low, and to efficient foreign acquisitions if such complementarities are high. Moreover, with large complementarities, foreign acquisitions can...

This paper proposes a cross-border M&A model with financially constrained owners in which the identity of the buyer and seller can be determined. We show that policies blocking foreign acquisitions to protect the domestic industry can be counterproductive. Foreign acquisition can increase the...

We develop a theory of commercialization mode (entry or sale) of entrepreneurial inventions into oligopoly, and show that an invention of higher quality is more likely to be sold (or licensed) to an incumbent due to strategic product market effects on the sales price. Moreover, preemptive...

Entrepreneurs face higher commercialization costs than incumbents. We show that this implies that entrepreneurs will choose more risky projects than incumbents, aiming to reduce their high expected marginal commercialization cost. However, entrepreneurs may select too safe projects from a social...

Commentators on the private equity industry often claim that favorable tax treatment gives private equity firms advantages in the market for corporate control. But we show that tax advantages do not affect the equilibrium ownership of corporate assets when acquisition costs are fully deductible...

We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the...

Many governments promote small businesses for the dual reasons of fostering 'breakthrough' innovations and employment growth. In this paper we study the effects of tax and subsidy policies on entrepreneurs' choice of riskiness of an innovation project and on their mode of commercializing the...

When and how do entrepreneurs sell their inventions? To address this issue, we develop an endogenous entry-sale asymmetric information oligopoly model. We show that lowquality inventions are sold directly or used for own entry. Inventors who sell post-entry use entry to credibly reveal...