Imperfections in the market for intangible assets can also play a major role in motivating firms to undertake cross-border acquisitions. According to the internalization theory,
A)cross-border acquisitions may also be motivated by the acquirer's desire to acquire and internalize the target firm's intangible assets.
B)a firm with intangible assets that have a public good property such as technical and managerial know-how may acquire foreign firms as a platform for using its special assets on a larger scale and, at the same time, avoid the misappropriation that may occur while transacting in foreign markets through a market mechanism.
C)the internalization thus may proceed forward to internalize the acquirer's assets, or backward to internalize the target's assets.
D)all of the above

Question

Quizplus · Accepted Answer

All of the statements given in options A, B, and C are correct in explaining how imperfections in the market for intangible assets motivate cross-border acquisitions based on internalization theory. The acquirer may want to acquire and internalize the target firm's intangible assets, especially if they are competitively valuable. Moreover, a firm may prefer to acquire a foreign firm as a platform for using its special intangible assets such as technical and managerial know-how on a larger scale while avoiding potential misappropriation that may occur through market transactions with foreign entities. Finally, internalization could work both ways, i.e., forward to internalize the acquirer's assets and backward to internalize the acquired/target's assets.

Imperfections in the Market for Intangible Assets Can Also Play