Foreign Takeovers and the Canadian Dollar Evidence and.pdfVIP

Foreign Takeovers and the Canadian Dollar: Evidence and Implications Lawrence Schembri, International Department • Since 1995, acquisitions of foreign firms oncerns have been expressed that the by Canadian residents and acquisitions of recent depreciation of the Canadian dollar Canadian firms by foreign residents have C has left Canadian firms “undervalued” and thus vulnerable to foreign takeovers increased. Through most of the period, however, and that such changes in ownership are not in Can- the cumulative net balance was close to zero. ada’s best interest. This article addresses these con- In 2000, a small number of large foreign cerns. First, the possible rationale behind them is takeovers of Canadian firms had a significant considered. Then, the foreign direct investment (FDI) impact on acquisition capital flows into data on flows of acquisitions between Canada and the rest of the world are examined to determine whether Canada. foreign acquisitions of Canadian firms have increased • Standard models of international asset pricing relative to Canadian acquisitions of foreign firms over 1 imply that there should not be a relationship the 1990s. A theoretical analysis based on a standard between the Canadian exchange rate and model of asset pricing is then used to evaluate the foreign takeovers of Canadian firms because possible links between exchange rate movements and