How bilateral investment treaties affect cross-border mergers and acquisitions: Novel evidence from China's internationalization

Abstract

Utilizing a comprehensive dataset of China and 127 host economies from 2004 to 2019 at both national level and firm level, we investigate how bilateral investment treaties (BITs) between China and global economies affect China's outbound cross-border mergers and acquisitions (CBMA). Our results demonstrate a positive effect of BITs on CBMA and such a promoting effect varies across host countries with different institutional and economic settings. While the most-favored-nation clause and umbrella clause are the underlying mechanisms accounting for the incentives of CBMA in the stage of pre-acquisitions, the expropriation and compensation clause drives the successful rate of CBMA. Further, non-state-owned enterprises display stronger incentive than state-owned enterprises.