National Security, Protectionism, and Shareholder Wealth
62 Pages Posted: 23 Jul 2018 Last revised: 24 Feb 2021
Date Written: July 22, 2018
We study the economic consequences of a protectionist foreign investment screening law that grants U.S. regulators broad new powers to revise or reject foreign acquisitions of firms deemed critical to U.S. national security. Our results document an important tradeoff between U.S. national security and shareholder wealth: securities regulation intended to improve national security reduces foreign demand for U.S. equities and lowers firm value. We corroborate this inference by curating an expansive database of 151 national security related foreign investment screening laws adopted by non-U.S. countries around the world. We document similarly large declines in the frequency and magnitude of national security firm takeovers following the adoption of these protectionist laws in G-7 countries. Our evidence suggests that proliferating protectionist laws weaken firm values and takeover markets.
Keywords: FINSA, CFIUS, financial protectionism, mergers and acquisitions.
JEL Classification: F52, G14, G34, G38, K22
Suggested Citation: Suggested Citation