Foreign Acquisition Research Articles

Evolution of Australia's Foreign Investment Review and Its Impact on Government Investors

Through a number of legislative reforms, most notably the Foreign Acquisitions and Takeovers Act of 1975 and its ensuing revisions, Australia's foreign investment policy has changed. The goal of the approach is to preserve national security while luring in international investment. The Foreign Investment Review Board (FIRB), which assesses foreign investments using a "national interest test," is a crucial component of this structure. With an emphasis on Chinese investments, this article investigates how these policies have affected state-owned businesses in particular. It examines potential changes to Australia's foreign investment laws in the future and draws attention to the difficulties presented by the FIRB review procedure.

Believing in Change: Predicting Identification, Performance, and Ethical Culture in an Organizational Acquisition Case in Romania

This study examines how positive beliefs about organizational changes during a foreign acquisition case influence organizational identification, perceptions of ethical organizational culture, and individual performance seven months post-acquisition. By integrating theories of social identity and organizational change, we offer a new perspective on how positive perceptions of change influence key outcomes following mergers and acquisitions (M&As). Using a cross-lagged design with two cross-sectional datasets within a high-intensity telecommuting organization in Romania, we found that viewing change positively significantly enhanced organizational identification, perceptions of ethical organizational culture, and individual performance. These findings highlight the crucial role of effectively managing the narrative surrounding change processes and enhancing employee perceptions in successful organizational integration following M&As.

Foreign Acquisition and Public Listing: Impact on Vietnamese Bank Performance

Foreign Acquisition and Public Listing: Impact on Vietnamese Bank Performance

Do foreign acquisitions improve target firms’ green innovation performance?

This paper investigates whether foreign acquisitions improve green innovation among target firms in emerging markets. It employs a sample of 739 foreign acquisition deals made in China over the period of 2005–2019. The empirical results find that foreign acquisitions are associated with target firms' green innovation strategies. We further explore the influence mechanism that operates between foreign acquisitions and firms' green innovations in host countries based on financial constraints. The results show that foreign acquisitions can improve target firms' green innovations by relieving financial constraints. The study also provides evidence that the effects of foreign acquisitions on green innovation vary across target firms’ ownership types.

The Quest for Corporate Control: Cross-Border Acquisitions and Foreign Takeovers in Italy, 2005–2015

This paper covers the trend of cross-border mergers and acquisitions (M&As) of corporate control in Italy. The expansion of international acquisitions in the last decades changed the corporate structure of industries and business organizations. The common understanding regards the suspicious transfer of control of companies to a foreign owner. However, the reasons seem ungrounded, and the evidence is conflicting. This paper aims to disentangle this view and offer a more objective assessment. The research uses a dataset comprised of 446 cross-border deals of foreign companies targeting Italian business enterprises over the period 2005–2015 and their performance over the period 2013–2022. The case of Italy is of interest because of the number of foreign acquisitions in the years that comprised the great financial crisis (2007–2008) and the sovereign debt crisis (2010–2011). Foreigners’ takeover of Italian companies followed multiple strategies and produced international synergies. The article concludes with implications and considerations for further research.

Short and medium-term effects of foreign acquisitions on manufacturing firms: Evidence from Germany

This paper, for the first time, investigates the impact of foreign acquisitions on German manufacturing firms using, newly available unique administrative micro data spanning 25 years. Based on an event study design combined with propensity score matching techniques, we find that foreign acquisitions significantly increase labor productivity and average wages in acquired firms. A reduction in employment drives both effects.

Do women in the boardroom influence foreign acquisitions' premium and outcomes? Evidence from China

AbstractThis paper examines whether gender diversity influences foreign merger and acquisition (M&A) premiums and outcomes in China. Consistent with agency and resource dependence theories, we find that female directors significantly reduce the acquisition premium paid for foreign targets. We show that the market responds positively in the short‐term (measured by cumulative abnormal returns) to the announcement of foreign acquisitions by firms with greater female representation in the boardroom. We further find significant evidence that acquirers' boards comprising more female directors experience value creation and better operating synergies (measured by buy‐and‐hold abnormal returns and changes in return on assets) in the long‐term following engagement in foreign M&A deals. Interestingly, after distinguishing between female independent and executive directors, we find that our previous finding on board gender diversity can be attributable to both the monitoring (independent directors) and supervisory (executive directors) roles played by female directors. We also find evidence accords with the argument of the critical mass of female directors' representation in the boardroom. Our results are robust after controlling for endogeneity issues using instrumental variables (IV), propensity score matching (PSM), Heckman, and firm fixed‐effects methods. Overall, our findings offer additional empirical support for the global concern by regulators for improving corporate governance practices by increasing female quotas in the boardroom.

Foreign Ownership and International Trade Performance in China

AbstractWe investigate the causal relationship between foreign ownership and international trade performance by comparing foreign‐acquired firms with similar domestic‐acquired firms in China with regard to changes in their post‐acquisition international trade performance. Our findings indicate that foreign ownership significantly enhanced the probability of both exporting and importing, and strongly increased trade value. Foreign ownership took effect from the year of the acquisition and persisted for at least 2 years. It stimulated both processing trade and ordinary trade, and expanded products and trading partners. Post‐acquisition trade performance also exhibited heterogeneity based on the different pre‐acquisition and post‐acquisition ownership. As for the underlying mechanisms, we show that firms experienced significant output expansion, increased export dependence, and eased financial constraints after foreign acquisition.

The consequences of the 2017 US international tax reform: a survey of the evidence

The 2017 US tax legislation—widely referred to as the Tax Cut and Jobs Act (TCJA)—fundamentally transformed the US system of international taxation. It ostensibly ended worldwide taxation but introduced, for instance, a new tax on “Global Intangible Low-Taxed Income”. This paper surveys the emerging empirical literature on the impact of the TCJA’s international provisions. It documents five robust findings in this empirical literature. First, the TCJA led to a general decline in US MNCs’ foreign acquisitions. Second, the TCJA increased US MNCs’ investment in routine foreign tangible assets. Third, the reform did not lead to any change in profit shifting by US MNCs beyond the magnitude that would be expected based on the TCJA’s tax rate reduction. Fourth, The TCJA appears to have reduced the market value of US MNCs relative to domestic US firms. Fifth, the TCJA does not appear to have had any detectable impact on domestic US investment and wages (although there are some contrary results for capital expenditures). The welfare implications of these findings depend crucially on whether US MNCs’ are viewed as having engaged in too much or too little foreign activity prior to the TCJA. This depends on the choice of theoretical framework and the relevant normative benchmark, and cannot readily be resolved empirically.

Firm performance following foreign acquisitions in Norway: Evidence of profit shifting?**

Abstract The paper examines what happened to the profitability of foreign-acquired firms following acquisition in Norway in the period 1994–2005. Propensity score matching combined with a difference-in-difference estimator is used to show that the profitability of the firms acquired goes down significantly following the acquisition. Cost elements, driving the lower profitability of the foreign-acquired firms, are the elements that could reflect transfer price manipulations. Furthermore, the results indicate that despite deteriorating financial performance, there is no significant change in the operating efficiency, liquidity, or solvency of the acquired firms. This may indicate that the observed changes in profitability can be explained by profit shifting activities of the acquired firms.

Individual preferences toward inward foreign direct investment: A survey experiment

In democratic societies, public attitudes toward foreign direct investment (FDI) can influence FDI policy as in other policy areas but have been largely ignored in FDI literature. To bridge this gap, we investigate individual preferences toward inward FDI. We employ a conjoint (vignette) survey experiment and analyze the determinants of preferences toward acquisitions by foreign firms. Conjoint survey experiments allow us to simultaneously estimate the effects of various attributes of foreign acquisitions, enabling us to analyze the complex causal relationships between various attributes of an acquisition project and people’s antipathy toward it. The results of the experiment show that the nationality of the foreign firm, reciprocity, and the economic conditions of the location of the firm being acquired are important factors. The subgroup analysis shows that older respondents and women are more negative about inward FDI. We also employ the gravity equation and confirm that our survey results are in line with the actual pattern of inward FDI stock.

The initial effect of U.S. tax reform on foreign acquisitions

The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in U.S. domestic and international tax policy, altering incentives for U.S. firms to own foreign assets. We examine the initial response of U.S. firms’ foreign acquisition patterns to the TCJA’s key reform provisions. We find a significant overall decrease in the probability that a foreign target is acquired by a U.S. firm after the reform, suggesting that the net effect of the TCJA was to reduce acquisitions abroad. Cross-sectional variation across target and acquirer characteristics points to the elimination of the repatriation tax and the TCJA’s global intangible low-taxed income (GILTI) regime as critically influencing cross-border acquisitions by U.S. firms. Specifically, U.S. acquirers with little foreign presence prior to the TCJA are more likely to acquire a foreign target, while U.S. acquirers are less likely to acquire profitable targets in low-tax countries. Results from our empirical analyses are consistent with the TCJA prompting fewer but more value-enhancing, less tax-motivated foreign acquisitions by U.S. firms.

U.S. national security and de-globalization

Globalization, defined as trade- and FDI-related interdependence among nations, increases social welfare by transmitting managerial practices, advanced technologies, and labor skills across borders. Recent declines in FDI flows have prompted scholars to speculate on the nature, magnitude, and determinants of de-globalization trends. We investigate whether a U.S. national security-related foreign investment screening law, the Foreign Investment and National Security Act of 2007 (FINSA), contributes to de-globalization trends. FINSA awarded a regulator known as the Committee on Foreign Investment in the United States broad new powers to revise or reject foreign acquisitions of firms in national security-related industries. Using a difference-in-differences research design, a wide variety of model specifications, and estimation samples spanning 1990–2016, we document post-FINSA declines in foreign takeovers of U.S. firms in national security-related industries. Consistent with techno-nationalism, we document that takeover declines are concentrated among research-intensive national security firms. Placebo, event-time, and robustness tests corroborate our results. Our empirical evidence suggests that foreign investment screening laws help explain the nature, magnitude, and determinants of recent de-globalization trends and prompts multinational enterprise managers to increasingly weight the political factors behind foreign investment screening laws when assessing foreign investment strategies.

The Effects of Foreign Acquisitions on the Value of Industry Peers

Abstract This article studies how industry peers’ stock prices respond when another firm in the industry is acquired by a foreign firm. The average stock price reactions of industry peers in horizontal foreign acquisitions around deal announcements are significantly negative. Peers’ returns are more negative in growing, less specialized, and competitive industries. Moreover, the negative stock price reactions of industry peers are related to future decreases in their operating performance. Overall, these results suggest that foreign acquisitions have strong competitive effects for the industry peers of U.S. target companies.

Why do people oppose foreign acquisitions? Evidence from Japanese individual-level data

This study empirically examines the determinants of individuals’ attitudes about inward foreign direct investment (FDI) using responses from questionnaire surveys that were originally designed. Individuals’ preferences for inward FDI differ between greenfield investments and mergers and acquisitions (M&A), and people are more likely to have a negative attitude toward M&A than greenfield investments. People with a negative image of the so-called “vulture fund” for foreign capital tend to oppose inward FDI, and this is more pronounced for M&A than greenfield investments. Moreover, loss aversion and high time preference rates are strongly related to opposition to inward FDI, and people with such behavioral biases tend to refuse indigenous firms to be acquired by foreign capital, even if they agree to accept greenfield investment. These results indicate that people’s preferences for inward FDI depend more on non-economic attributes than economic attributes. Our results also suggest that a lack of economic literacy is associated with unconscious biases against accepting inward FDI.

IP protection and ownership in cross-border acquisitions

We use the institutional theory to examine the impact of intellectual property protection on US multinational corporations (MNCs) ownership levels of their foreign acquisitions. Based on a sample of 7238 completed international M&A deals made by US MNCs from 1998 to 2017, we found that multinationals protect their intellectual property through more ownership when they are technologically intensive and invest more when IP protection is strong. However, IP protection negatively moderates the need for more ownership for technologically-intensive multinational corporations. Our results are robust to a battery of empirical tests, including a unique instrumental variable approach. This leads us to claim that our results are not merely correlated but are causal.

Balancing the Protection of Foreign Investors and States Responses in the Post-Pandemic World

The COVID-19 pandemic has had a shattering effect on the international economic ecosystem, severely hampering—if only temporarily—its much-needed effort for liberalization and ever-growing interconnection.2 In the wake of the pandemic, States have swiftly enacted drastic emergency measures to safeguard the health of their citizens, which among other things imposed limitations on the movement of people, suspended the production of non-essential activities, redirected economic endeavours towards life-saving products, disrupting the global supply chain. The ensuing economic shock suffered by national economies was promptly followed by a wide range of efforts to support domestic businesses, secure jobs, and protect crucial activities from foreign acquisition. The emergency measures were often adopted without a preliminary assessment of their compatibility with the State’s existing international commitments towards economic liberalization, raising the question whether their adoption would entail international responsibility for the State. Though the capacity of international economic regimes to unduly constrain the State’s ability to meet the need of its own people is a recurring theme in international economic law,3 it has emerged prominently with regard to the international investment regime.4 The international protection of foreign direct investment (FDI) has long been perceived as unbalanced in favour of foreign investors, triggering a widespread move to reform international investment agreements (IIAs) with the aim of granting States a greater ‘margin of manoeuvre’ in their sovereign action.5 Though the reform process is well under way, the lack of coordinated efforts has so far led to an extremely fragmented IIA framework, still dominated by old-generation treaties and in which new IIAs have often not yet entered into force.6

The Language of Subtitles for Arabic-English Bilingual Speakers in the United Arab Emirates

This paper investigates the use of subtitles by Arabic-English bilingual speakers in the UAE. While extant research on the effects of subtitles on language acquisition focuses on either first language acquisition by children or second or foreign acquisition by monolingual speakers, this study examines bilingual speakers and their preference for the language of subtitles in different contexts via an online questionnaire. Results from 28 Arabic-English bilingual speakers revealed that subtitles were used more frequently for foreign language films and English language films over Arabic language films, and English was the preferred subtitle language regardless of the language of the film. Higher dependence on subtitles for English language films in contrast to lower dependence on subtitles for Arabic language films suggests the participants’ lower English proficiency and higher proficiency in Arabic. However, an analysis of self-reported language proficiency revealed that participants were more dominant in English, which also accounts for the selection of English as a preferred subtitle language. The paper concludes that such contradictory findings reflect linguistic dualism between English and Arabic that prevails in the UAE, which is due to the proliferation of English especially in the education sector in the country.

Importing Automation and Wage Inequality Through Foreign Acquisitions

Importing Automation and Wage Inequality Through Foreign Acquisitions

Learning from inbound foreign acquisitions for outbound expansion by emerging market MNEs.

The online version contains supplementary material available at 10.1057/s41267-022-00583-x.