Growing Lemons or Cherries? Pre and Post‐acquisition Performance of Foreign‐Acquired Firms in New EU Member States

Foreign acquisitions are an increasingly important mode of FDI in the new EU member states ( NMS ). Using firm‐level data and a common estimation framework for seven NMS , we study pre‐ and post‐acquisition performance of acquired firms. This paper, to the best of our knowledge, represents the first comprehensive study of the pre‐ and post‐acquisition performance of foreign‐acquired firms in NMS . Distinguishing between the impact of target selection and post‐acquisition improvements on performance, we find that, on average, foreign investors are targeting ‘lemons’ with growth potential rather than ‘picking cherries’. Regardless of targeting ‘cherries’ or ‘lemons’, performance of acquired firms improved after the acquisition, whereby the boost in productivity is not achieved by reducing employment but mostly by increased efficiency in the use of production factors especially labour.