Foreign investor reactions to risk and uncertainty in antitrust: U.S. merger policy investigations and the deterrence of foreign acquirer presence

Motivated by the potential for antitrust and competition policies to be protectionist in effect, we formulate the theoretical prior that merger policy deters foreign acquirer participation in local M&A markets. The policy risk and policy uncertainty characteristic of merger review may negatively affect foreign acquirers more so than domestic acquirers, thereby disadvantaging foreign acquisitions of local firms and deterring future cross-border investment activities. We test this prior by employing sector-level data on U.S. merger policy investigations and foreign acquirer presence in U.S. M&A markets over the 2002–2017 period. Our panel-data methodological approach indicates that the risk and uncertainty characteristic of U.S. merger policy disproportionately deters the acquisition activities of foreign investors. The empirical results also suggest that the application of competition and merger policies in other national jurisdictions – where there is less of a strong commitment to antitrust principles – might also be effectively protectionist.