Risk hedging: How geopolitical risks affect enterprises' overseas merger and acquisition?

Abstract

Geopolitical risk profoundly impacts business decision-making in international expansion by interrupting market access, distorting resource allocation, and increasing regulatory uncertainty, consequently necessitating strategic value chain restructuring through cross-border acquisitions. This analysis analyzes Chinese A-share listed companies from 2013 to 2023, demonstrating that increasing geopolitical concerns systematically drive offshore M&A operations as a risk-hedging strategy. The empirical evidence reveals two mediating pathways: (1) increased financing constraints that compel firms to circumvent domestic credit limitations by utilizing internal resources, and (2) diminished total factor productivity that prompts efficiency-driven acquisitions in geopolitically stable markets. Further, non state-owned enterprises and higher competitive industry have more pronounced effects.