IS THERE A POSITIVE ASSOCIATION BETWEEN MERGER AND ACQUISITION AND NON-MERGER AND ACQUISITION FDI? FIRM-LEVEL EVIDENCE FROM JAPANESE FOREIGN DIRECT INVESTMENT INTO UNITED STATES

Japanese firms undertake multiple foreign direct investments (FDIs) in the United States. When Japanese firms undertake merger and acquisition (M&A) FDI, they acquire indivisible assets in the United States. To utilize their acquired assets fully, these firms may undertake additional non-M&A FDI. This implies a positive association between the number of M&As and the number of non-M&A FDIs because they may be complements. In contrast, the literature on the choice of modes of FDI examines the tradeoff between M&A and non-M&A FDI. This may suggest a negative association between the number of M&As and non-M&A FDIs because they may be substitutes. The authors examine whether the number of M&As and non-M&A FDIs are positively associated or not by proposing an econometric model that tests the contemporaneous association and the lagged complementary effect between M&A and non-M&A FDI. Using firm-level data, the authors find evidence that M&A and non-M&A FDI of Japanese firms in the United States are positively associated. Particularly, the findings indicate that given all other things equal, a one unit increase in the number of the firm's M&A FDI (non-M&A) projects in a given year will increase the firm's average non-M&A (M&A) FDI by 28.1% (15.8%) the following year.