National security review and ownership participation in cross-border acquisitions

Despite the growing institutional pressure derived from rising nationalism and national security concerns being recognized, we know relatively little about how this pressure influences firms’ internationalization strategy, and the policy effect of the national security review regime (NSRR) is under-researched. This study explores the impact of NSRR in host countries on foreign acquirers’ ownership participation in cross-border acquisitions (CBAs). We developed a theoretical framework from a legitimacy perspective to explain how the implementation of the NSRR impacts acquirers’ ownership decisions, and how this impact is conditional on situational conditions. Based on the data on the CBAs conducted by Chinese multinational enterprises (CMNEs) in OECD countries during 2003–2020, we found a negative effect of the NSRR on ownership participation. The negative effect is weaker for private acquirers, private targets, acquisitions in insensitive sectors, acquisitions between countries with relatively smaller ideological differences, and acquisitions in host countries with lower economic growth.