The takeover Tango: Unraveling the impact of state-owned enterprise acquisitions on American competitors

Abstract

When foreign state-owned enterprises (SOE) enter the United States (US) market by acquiring domestic targets, they increase competition in the targeted industry and pressure domestic competitors. Competitors should respond to such acquisitions by changing their behavior. Using acquisition data from 2010 to 2018, we examine the impact of acquisitions by foreign SOEs on the US competitors of acquisition targets. We analyze the initial response to acquisition announcements, the attempts of industry incumbents to increase their political connections, and the change in profitability and efficiency of such incumbents. Investors respond most negatively to SOE acquisitions when the domestic competitor is politically connected, implying such firms have the most to lose from such acquisitions. The US target firms can access resources from SOEs to offer better and cheaper products and thus increase their market share. Our analysis shows that competitors’ profitability and lobbying activity decrease while efficiency increases after SOE acquisitions. These results indicate that SOE acquisitions force domestic competitors to adapt to a changing competitive environment.