Download This PaperFDI Screening and Its Impact on Strategic Firms Value: An Event Study Analysis
28 Pages Posted: 13 May 2020
Date Written: April 9, 2020
Abstract
Countries have historically welcomed foreign capital and have implemented policies to facilitate and encourage its inflow. However, the recent surge of FDI from economies characterised by large state interventionism has raised concerns for national security and economic stability, leading to increased protectionism. Though, it is unclear whether the state’s decision of defining a firm as of strategic relevance for the nation, thus sheltering it from foreign investments, represents a blessing or a curse for the company protected. On the one hand, the acknowledgment that a firm is fundamental for the country could confer an outstanding relevance to the firm itself; on the other hand, the government's decision of preventing potential acquisitions of the firm could significantly affect its value.
This work aims to compare the effects of acquisitions' prohibitions caused by antitrust reasons to those triggered by strategic concerns. For this purpose, an event study analysis has been conducted, finding the value loss suffered by firms whose scalability is blocked to protect strategic assets is more severe and long-lasting than that caused to companies whose expansion is obstructed to safeguard market competition. Additionally, the analysis’ result suggests state interventionism is likely to cause a structural value reduction in the firms protected from FDI.
Keywords: Foreign Direct Investments, Strategic Assets Protection, Cross-border M&A regulation
JEL Classification: F21, C01, E65
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