The Heterogeneous Impacts of Foreign Acquisition on Domestic Targets

Are acquired targets' performance homogeneously affected by foreign multinational enterprises? Using firm and firm-product level data from China with event study through a matching approach, we document that MNEs from developed countries drive relatively large productivity gains in their acquired targets through non-diverse market-seeking strategies. Conversely, we show that only targets acquired by MNEs from Hong Kong, Macao, and Taiwan (HMT) with export strategies experience increased price margins post-takeover. Focusing on targets in the export market, we then find that only HMT MNEs' targets experience a decline in export product scope, with export product quality falling by 1.5% post-takeover. We find that HMT MNEs' targets are generally more labour-intensive and have lower innovation capability than WD MNEs' targets.