Multinational Firms and Cross-Border Mergers: Theory and Evidence

Multinational firms play a pivotal role in the global economy, yet economic and finance research has largely examined them in isolation. Economic theory focuses on trade and multinational activity but gives relatively little attention to cross-border mergers, while finance research emphasizes empirical studies of mergers but rarely integrates broader economic theories. This chapter aims to synthesize these two literatures into a unified framework for understanding multinational firms and cross-border mergers. The discussion is organized around the decision-making process of multinational firms, from choosing to operate internationally to selecting between greenfield investment and mergers. This framework reveals the theoretical and empirical evidence on the drivers of multinational production, including productivity gains, knowledge transfers, and market frictions. The findings highlight the commonality between the two literatures, but also suggests that greater integration between economic theory and finance research will generate a deeper understanding of the role of multinational firms in the global economy.