Effects of foreign acquisitions on R&D and high-skill activities

Using Swedish microdata, we find no evidence for the concerns circulating in the public debate that foreign acquisitions lead to reductions in both R&D expenditures and high-skilled activities in targeted domestic firms for either MNEs or non-MNEs. Previous studies have only focused on larger firms. In this paper, we are able to study the impact on smaller firms (fewer than 50 employees), which is important because 90% of the firms acquired by foreign enterprises meet this criterion. For this group of firms, there is no information on R&D, but by using the register of educational attainment, we obtain data on the share of high-skilled labour in all Swedish firms, irrespective of size. Interestingly, we find that among smaller firms, foreign enterprises tend to acquire high-productive, skill-intensive firms (cherry-picking). After the acquisitions, skill upgrading appears in acquired smaller, non-MNE firms, particularly in the service sector.