Testing the relevance of the asset acquisition hypothesis on a sample of cross-border M&As between UK and US firms

Artur Riwe

Student thesis: Master thesis


This thesis investigates the relevance of the asset acquisition hypothesis for developed economies in light of the unprecedented integration of economic markets around the world. The asset acquisition hypothesis proposes that a depreciation of the domestic currency will stimulate foreign acquisitions of domestic targets that possess transferable firm-specific assets. The crucial assumption is that a sufficient degree of market segmentation exists, so that a foreign company enjoys a competitive advantage in its foreign market relative to companies from the domestic country. Foreign firms should thus have more opportunities to generate returns from the acquired asset. The implication is that a depreciation of the domestic currency will increase the investment’s NPV for foreign firms, while leaving domestic firms’ NPV for the same investment unchanged. Existing research finds evidence for an exchange rate effect as proposed by the asset acquisition hypothesis; however, the samples used by these studies are outdated. Foreign direct investment has risen dramatically since the 1990s, leading to increased market integration in today’s world, particularly among developed countries. Using a contemporary sample of bilateral cross-border acquisitions between UK and US companies, this study fails to find any support for the asset acquisition hypothesis. The exchange rate exhibits no significant impact on the number of crossborder M&As in any of the models analyzed. The results suggest that the assumption of sufficient market segmentation is not applicable to the examined sample any longer, rendering the asset acquisition hypothesis irrelevant in the context of the studied country pair and time interval.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2013
Number of pages116