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Tariff cost and cross-border M&A affiliate sales: Evidence from China

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  • Xie, Dan

Abstract

Cross-border mergers and acquisitions (M&A) is a major form of foreign direct investment (FDI). In contrast to many developed countries, the majority of China’s cross-border M&As are vertical rather than horizontal. I study the difference in the reaction to tariff of horizontal and vertical M&A subsidiary sales. The baseline OLS regressions show that as export tariff cost increases, cross-border M&A affiliate sales relative to export rises, and the effect mainly comes from vertical affiliates, especially in downstream subsidiaries. The main results are robust to the Poisson pseudo maximum likelihood (PPML) regressions and an instrumental variable (IV) approach. A simple model is developed to reconcile the empirical findings when horizontal and vertical M&As co-exist in the same market and further tested at both the extensive and intensive margins. The results offer new insights to understanding the performance of M&As from developing economies.

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  • Xie, Dan, 2023. "Tariff cost and cross-border M&A affiliate sales: Evidence from China," Journal of Asian Economics, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:asieco:v:87:y:2023:i:c:s1049007823000568
    DOI: 10.1016/j.asieco.2023.101636
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    More about this item

    Keywords

    Tariff cost; Cross-border M&As; Horizontal and vertical FDI; China;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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