Foreign acquisition, entry strategies, and firm performance: evidence from China

How do foreign multinationals’(MNEs) entry strategies and origins affect target firms’ performance? To shed light on this question, we identify five entry strategies for MNEs from two origins, and adopt an event study model with the coarsened exact matching approach where firms’ performance is evaluated based on productivity, markups, and innovation. Our estimates reveal that only targets acquired by MNEs from Western Developed countries experience improvement in productivity efficiency, in which the targets with a non-diverse market-seeking strategy witness the highest productivity gains post-acquisition. By contrast, acquired targets by Hong Kong, Macao, and Taiwan (HMT) face tougher competition, particularly for targets with non-diverse, exporting, and mixed strategies, experiencing declined markups and higher product dropping rates. Finally, we show that only the targets of HMT MNEs with non-diverse and exporting strategies benefit from innovation activity post-takeover.