Does cross-border M&A improve merging firms’ domestic performances?

Facing the concerns that outward foreign direct investments might hollow out domestic corporate activities, we examine whether cross-border acquisitions by emerging market enterprises (EMEs) improve or damage domestic corporate performances based on the data of 348 Indian firms’ cross-border M&A experiences from 1995 to 2017. We investigate acquirers’ post-M&A performances by nonparametric flexible conditional difference-in-difference (DID) analysis which considers different treatment timing and periods. We find that cross-border acquisitions increase acquiring firms’ domestic sales, total labor costs, and total factor productivity (TFP). In addition, we demonstrate that Indian firms’ cross-border M&As in technology-intensive sectors with merged firms located in OECD countries taking the form of horizontal M&As show better domestic performances. The results implicate that well-tuned outward FDIs via cross-border M&As of emerging economies do not hollow out but complement domestic corporate activities.