The World Economy

The World Economy (2017)

doi: 10.1111/twec.12428

Foreign Acquisitions and Target Firms’

Performance in China
Qing Liu1, Ruosi Lu2 and Larry D. Qiu3
1
School of International Trade and Economics, University of International Business and Economics
(UIBE), Beijing, China, 2School of Public Administration, University of International Business and
Economics (UIBE), Beijing, China and 3Faculty of Business and Economics, The University of Hong
Kong, Hong Kong

1. INTRODUCTION

C ROSS-border mergers and acquisitions (M&As) are important in the globalisation era.
From an economic development point of view, how foreign acquisitions affect the econ-
omy of the target country, especially developing countries, and the performance of the target
firms are of particular interest. In this paper, we explore the effects of foreign acquisitions in
China.
Theories suggest that foreign acquirers can enhance the post-acquisition performance of the
target firms by transferring capital, technologies, managerial expertise and other tangible and
intangible assets to such firms. In particular, in a broader literature of multinational firms and
foreign direct investment (FDI), Markusen (2002) argues that multinationals possess firm-spe-
cific assets that can be transformed to superior technology and know-how in subsidiaries
abroad. Helpman et al. (2004) propose that firms need to overcome a large fixed cost of invest-
ment abroad, and hence, multinationals making FDI must have higher productivity than expor-
ters and other domestic firms. Thus, they can bring better technologies to the subsidiaries
abroad. Yeaple (2003) suggests that multinationals are able to arrange and transfer resources
across countries to make their plants more efficient.1 Although all these theories are directly
about knowledge transfer from parent firms to subsidiaries, they can be equally applied to
acquirers and targets in the content of foreign acquisitions. The theories imply the following
proposition/hypothesis: foreign acquisitions enhance the performance of the target firms.
However, previous empirical studies provide mixed results.2 Part of the reasons for the
inconclusiveness is that most studies exclusively focus on target firms in developed countries.
On the one hand, certain studies find that foreign acquisitions positively affect the productiv-
ity of the target firms in various developed countries, such as France (Bertrand and Zitouna,
2008), United States (Chen, 2011), UK (Griffith, 1999; Conyon et al., 2002; Girma and Gorg,
2007a, 2007b) and Sweden (Karpaty, 2007). On the other hand, several studies also find that
foreign acquisitions do not improve the performance of the target firms in Italy (Benfratello
and Sembenelli, 2006) and Portugal (Almeida, 2007). Harris and Robinson (2002) even find

This study benefits from seminar presentations at Kobe University, Kyoto University, The University of
Hong Kong, and 2014 IEFS China Annual Conference. We are also grateful to the referee and editor for
helpful comments and suggestions.
1
Harris and Robinson (2002) also review the related theories in literature. Although most studies iden-
tify the positive effects of cross-border M&As, several concerns are left unaddressed. Foreign takeover
may reduce the performance of the target firms as foreign multinationals may reallocate the production
of the target firms to other plants in foreign countries.
2
Aitken and Harrison (1999) find that earlier case studies also yield mixed results.

2 © 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 3

that foreign firms tend to acquire the most productive plants in the UK and observe that the
productivity of these plants decline after the acquisitions.
Only a few studies examine the effects of acquisitions on target firms in non-developed
countries. By conducting a survey among 513 firms, Djankov and Hoekman (2000) examine
publicly traded firms in the Czech Republic, a transition economy, and find that foreign own-
ership leads to improved firm performance.3 Arnold and Javorcik (2009) examine target firms
in Indonesia and find that foreign acquisition increases the productivity of these firms.4
Given that foreign acquisitions in developing countries are increasing and have taken a signifi-
cant share, the existing literature is clearly inadequate with regard to investigating the effects of
acquisitions on target firms in developing countries. This paper contributes to the existing literature
by providing further empirical evidence on the effects of foreign acquisitions on firms in develop-
ing countries in general, and China in particular. Focusing on China is both important and interest-
ing. First, China is the largest developing country in the world. In addition, China is the second
largest recipient of FDI including cross-border M&As in the world and is the largest among devel-
oping countries. Although the share of foreign acquisitions in the total inward FDI of China (about
7.3 per cent between 1990 and 2010) is much lower than the world average (38.9 per cent during
the same period), foreign acquisitions in the country are rapidly increasing. Figure 1 shows the fre-
quency and value of foreign acquisitions in China from 1990 to 2010. Thus, evidence on the
effects of foreign acquisitions in developing countries excluding China will clearly be biased.
Second, China is not a typical developing country. On the one hand, like all developing coun-
tries, the GDP per capita of the country is still very low; the average technology and efficiency
of the economy need to be improved; there are still many underdeveloped areas, regions and
sectors. On the other hand, China also shares some features of the developed countries: the large
economy of China provides a large-scale R&D base and advanced technologies for the country;
China is very advanced in some technology frontiers; some areas and cities have already reached
high GDP per capita. Hence, an interesting question is whether the effects of foreign acquisi-
tions in China are similar to those in the developed countries or developing countries, or unique.
Third, although China had strengthened its intellectual property rights (IPR) protection espe-
cially after the WTO accession in 2001, the Chinese government has been continuously criti-
cised by foreign governments and multinationals for not enforcing the laws. Many proposals of
foreign acquisitions in China have not been approved by the government’s antimonopoly
offices.5 These features of the country have strong implications on the selection of foreign
acquisitions, their choices and the potential effects of these acquisitions on the Chinese econ-
omy. These implications are worth exploring both academically and for policy debates.

3
Salis (2008) focuses on Slovenia, another transition economy, and finds that the acquired firms do not
outperform the domestic firms in terms of productivity improvement. However, Salis only uses one-year
foreign acquisition data (1997) and warns that different post-acquisition productivity changes may occur
in the long run.
4
Although Du and Girma (2009) and Girma et al. (2012) investigate the topic in the Chinese context, they
primarily investigate the effects of foreign equity share rather than those of acquisition. Many studies have
explored the FDI spillovers in developing countries. However, we focus on the effects of foreign acquisi-
tions on the target firms. Blomstrom and Sjoholm (1999) compare the productivity of Indonesian firms with
foreign ownership and those without foreign ownership. Although some firms with foreign ownership are
targets of foreign acquisitions, Blomstrom and Sjoholm only use one-year data (1991), which makes them
unable to analyse the productivity of the target firms before and after the acquisitions.
5
Examples include the bidding of Coca-Cola for Huiyuan, the bidding of the Carlyle Group for
Xugong, the bidding of Nestle for Xu Fuji and the bidding of Schneider for NVC lighting.

© 2016 John Wiley & Sons Ltd

4 Q. LIU, R. LU AND L. D. QIU

FIGURE 1
Foreign M&As in China
400

250
200
300
Value (USD 10 Million)

150
Number
200

100
100

50
0

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year
China M&A Inflows China: Inward M&A Number

Source: UNCTAD.

We construct a unique data set based on the Annual Survey of Industrial Enterprises
(ASIE) in China and the Thomson Financial SDC Platinum database to examine the effects of
foreign acquisitions on the performance of the target firms in China. Our ordinary-least-square
(OLS) regression results show that foreign acquisitions are associated with the 22, 18 and 24
per cent increase in the total factor productivity (TFP), sales and fixed asset investment of the
target firms, respectively.
The selection bias in foreign acquisitions challenges the OLS regression results. Acquirers
may not select their targets randomly and may ‘cherry pick’ firms. To identify the causal
effect of foreign acquisitions on the performance of the target firms, we conduct a difference-
in-differences (DID) analysis with two different methods to construct the control groups. All
the target firms in our data set are included in the treatment group. We construct our first con-
trol group using all would-be targets in the data set, namely the Chinese firms that have been
announced as acquisition targets by foreign firms but are not eventually acquired. We also
conduct propensity score matching (PSM) to construct the control group from a matched sam-
ple, in which the target firms (the treatment group) are paired with the closest non-acquired
firms. We perform DID analysis on each control group. Both analyses show that foreign
acquisitions significantly improve the performance of the target firms. We perform several
tests to ensure the validity of our DID estimation.6
We analyse the roles of technology gap, foreign equity control and acquirer–target
relationship in the performance-enhancing effects of foreign acquisitions. A stronger

6
Most of the recent empirical studies have carefully addressed the endogeneity issue. Similar to our
study, Chen (2011) uses propensity score matching and the would-be targets to construct the control
groups. However, Chen has performed fewer sensitivity tests as compared to our study.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 5

performance-enhancing effect is observed when a larger technology gap exists between the
country of the acquirer and China.7
With regard to the effect of foreign control, we observe an inverted-U relationship between
the performance of the target firms and the share of the target firm’s equity held by the foreign
acquirers, which indicates that technology and management transfer are not the only factors that
affect the performance of the target firms. Acquirers are expected to transfer highly advanced
technology and management to their targets when they hold a large percentage of equity of the
target firms. However, a very large foreign equity control provides the local participants with
less incentive to contribute to the firms, which in turn reduces their performance.8 With regard
to the acquirer–target relationship, we find that the performance-enhancing effect only exists in
horizontal and conglomerate acquisitions, but not in vertical acquisitions.9
Although Du and Girma (2009) and Girma et al. (2012) also focus on the Chinese context,
these studies exhibit several important differences as compared to our study. First, these stud-
ies merely rely on China’s ASIE data set that provides information on Chinese firms. In con-
trast, we merge this data set with the Thomson Financial SDC Platinum database, which
contains M&A information on worldwide firms. As a result, these studies use the foreign
equity share in each Chinese firm as their key explanatory variable, whereas we use the action
of foreign acquisition on Chinese firms as our key explanatory variable. In other words, we
investigate the effect of acquisition per se rather than that of foreign participation. Second,
we investigate the effect of acquisitions on the productivity of the target firms, whereas Du
and Girma (2009) and Girma et al. (2012) focus on the effects of foreign participation on
domestic sales growth, exports, new product developments and R&D.
The rest of the paper is organised as follows: Section 2 describes the data set, Section 3
describes the OLS and DID analyses that use two types of control groups, Section 4 describes
the analyses on different features of foreign acquisitions, and Section 5 concludes the paper.

2. DATA

We construct our data set from two data sources, namely the ASIE for 1998–2007, which is
compiled by the National Bureau of Statistics of China (NBS), and the Thomson Financial SDC

7
Chen (2011) finds that acquisitions by firms from different origins, such as industrialised countries,
developing countries and domestic countries, produce different effects on the acquired US firms. Indus-
trialised firms generally provide the highest benefits to US firms, and the ranking between the acquirers
from domestic and developing countries depends on the adopted performance measures. Benfratello and
Sembenelli (2006) find that foreign acquisitions do not improve the productivity of the target firms in
Italy, but also find that the performance of the targets is enhanced when they are acquired by US firms
rather than by firms from other countries. Bertrand and Zitouna (2008) find that cross-border M&As
have a stronger productivity-enhancing effect on the French target firms rather than domestic M&As.
8
Aitken and Harrison (1999) find that a larger percentage of foreign ownership in a small firm in Vene-
zuela leads to a greater enhancement in productivity. However, this result is not observed among large
firms. In contrast, we find an inverted-U relationship between foreign equity participation and target firm
performance, with a 55 per cent turning point for each type of performance. This finding suggests that
even though foreign control may contribute to the transfer of technology and management to the target
firms, local participation represents another crucial factor because excessive foreign control may crowd
out the incentive of the local firms.
9
This finding contradicts those of existing studies. Bandick (2011) finds that foreign acquisitions of
Swedish firms improve the productivity of the targets in vertical acquisitions, but does not produce any
effect in horizontal acquisitions. Javorcik and Spatareanu (2008) also find vertical spillovers.

© 2016 John Wiley & Sons Ltd

6 Q. LIU, R. LU AND L. D. QIU

Platinum database. The ASIE database includes detailed financial and operational information
on all state-owned and non-state-owned manufacturing enterprises in China with an annual turn-
over of more than CNY 5 million. On average, firms covered in this data set accounts for around
95 per cent of China’s total industrial production each year. Indeed, aggregated data on the
industrial sector in China’s Statistical Yearbook by the NBS are compiled from this data set.
The SDC database provides rich information on worldwide cross-border M&A transactions,
including the profiles of the target and the acquirer (i.e. name, nation and sector), the announce-
ment or effective date of the deal, the status of the deal and additional details on the deal (i.e.
form of acquisition as well as the percentage of shares that are acquired and eventually held).
Theoretically, the SDC database includes all M&A deals (both private and public transactions)
in the world. We merge these two databases by matching the names of the target Chinese firms.
We re-confirm the matching with the address and industry affiliation of each firm.
We identify 1,245 cases in which Chinese manufacturing firms are announced as targets of
M&As between 1998 and 2007. Only 775 of these cases are finally executed. Our main regression
analysis is based on the executed or completed deals. A total of 4,114 observations are included in
our unbalanced panel data set.10 We call the targets of the other 470 unexecuted M&As the
‘would-be targets’. These firms will be used to form a control group in our DID analysis.
Table 1 shows the attributes of the Chinese target firms before and after acquisitions,
with the upper panel for the actually acquired firms and the lower panel for the would-be
target firms. These attributes include TFP, sales, fixed asset investment, employment, total
asset, capital–labour ratio and asset–liability ratio. Although other variables are directly
available from the data set or can be obtained by a simple calculation, we estimate the
TFP of each firm using the Levinshon–Petrin approach (Levinsohn and Petrin, 2003).11
Based on the simple mean comparison in the upper panel, we observe that the perfor-
mances of all the Chinese target firms have improved after the foreign acquisitions. The
improvements on all attributes, except for employment, are statistically significant. How-
ever, the pattern for the would-be targets is not that clear cut. Most of the changes are
insignificant except for sales, employment (even negative) and capital–labour ratio. These
comparisons imply the potential impacts of foreign acquisitions. However, we obtain this
finding without controlling for the many other factors that affect firm performance, and this
finding does not imply the causal effect of foreign acquisitions. We investigate these issues
in the succeeding paragraphs.

3. EMPIRICAL ANALYSIS

a. Model Specification
A standard OLS method could be used to estimate the effect of foreign acquisitions on
each performance variable, specifically on productivity, sales and fixed asset investment. Con-
trolling for ex ante firm attributes and year, industry and region fixed effects to address the
omitted variable problem, the baseline model in the literature is generally as follows:

10
Twenty-two target firms that have been acquired more than once during the sample period are
excluded from the analysis. The results are not qualitatively changed after the omission.
11
We estimate the TFP of each industry at a two-digit industry level with value added, employment,
fixed assets, and intermediate inputs. All nominal variables are deflated by using the deflators from
Brandt et al. (2012).

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 7

TABLE 1
Summary Statistics of Firm Characteristics

Continuous Variables Pre-acquisition Post-acquisition Difference

Observations Mean SD Observations Mean SD

Acquired firms
TFP 1,881 3.87 1.49 1,784 4.20 1.53 0.33***
Sales (log) 2,072 11.69 1.63 2,015 12.11 1.69 0.42***
Fixed asset investment (log) 2,075 10.77 1.79 2,013 11.04 1.83 0.27***
Age 2,031 1.93 0.97 1,999 2.11 0.79 0.18***
Employment (log) 2,064 5.95 1.36 2,022 5.99 1.34 0.05
Asset (log) 2,080 12.00 1.58 2,018 12.34 1.57 0.34***
K/L (log) 2,057 4.73 1.31 2,008 5.16 1.29 0.43***
Asset/liability 2,070 0.23 0.76 2,004 0.30 0.84 0.07***
Would-be targets
TFP 1,283 4.26 1.58 1,088 4.32 1.73 0.06
Sales (log) 1,433 12.19 1.97 1,252 12.34 2.03 0.15*
Fixed asset investment (log) 1,434 11.30 2.11 1,250 11.30 2.14 0.00
Age 1,400 2.10 1.04 1,238 2.11 0.88 0.01
Employment (log) 1,422 6.47 1.68 1,253 6.14 1.62 0.33***
Asset (log) 1,436 12.56 1.88 1,252 12.57 1.89 0.01
K/L (log) 1,416 4.66 1.27 1,245 5.07 1.47 0.41***
Asset/liability 1,431 0.17 0.61 1,248 0.15 0.85 0.01

Notes:
(i) All continuous variables take the log form.
(ii) Fixed asset investment represents the sum of the increase of net fixed asset and depreciation.
(iii) K/L represents the quotient of capital stock and employment.
(iv) ***Significance level of 0.01, *significance level of 0.10.

Yipt ¼ a0 þ a1 ACQit þ Xi;ft2;t1g

0
A2 þ ft þ gj þ dp þ eipt ; (1)
where, in each regression, Yipt is the performance variable (TFP, sales and fixed asset invest-
ment) of firm i in province p in year t, ACQit is the key explanatory variable representing for-
eign acquisition, which equals 1 for every year following the acquisition and equals 0 before
the acquisition, and the others represent control and fixed-effect variables.12 X0 i;ft2;t1g is a
vector of firm-specific and time-invariant control variables, including firm age, size, capital–
labour ratio, current asset–liability ratio, state ownership dummy, foreign ownership dummy
and export dummy.13 All non-dummy variables in X0 i;ft2;t1g take the average values
two years prior to acquisition.14 For the dummy variables in X0 i;ft2;t1g , StateControl equals
1 if state ownership exceeds 20 per cent in the two years prior to the acquisition and equals 0

12
Previous studies show that industry and firm-specific characteristics, such as vintage capital and plant
or firm size, may generate significant differences in productivity that cannot be attributed to foreign
ownership per se (Davies and Lyons, 1991; Markusen, 1995; Doms and Jensen, 1998; Tybout, 2000).
Our OLS specifications are primarily based on these findings.
13
Correspondingly, A2 is a vector of parameters.
14
As a robustness check, we change the pre-acquisition year scope to construct the average values of
the continuous variables. For example, we use the average value of the second and third years prior to
the acquisition. Our results are not sensitive to such changes.

© 2016 John Wiley & Sons Ltd

8 Q. LIU, R. LU AND L. D. QIU

otherwise, ForeignControl equals 1 if foreign ownership exceeds 20 per cent in the two years
prior to the acquisition and equals 0 otherwise, and Exporter equals 1 if the firm ever exports
in the two years prior to the acquisition and equals 0 otherwise. The fixed-effects variables
include ft, gj and dp, which control for year, two-digit level industry and province, respec-
tively. ɛipt denotes the heteroscedasticity-robust error term. The coefficient a1 measures,
ceteris paribus, the effects of foreign acquisitions on the performance variables.
We run several OLS regressions with various sets of control variables. All estimation
results show that a1 is positive and statistically significant.15 However, it is well known that
OLS estimates may reflect a potential selection or endogeneity bias in the foreign acquisitions.
Foreign acquisitions may not be exogenous if foreign firms do not select their target firms
randomly. Therefore, the OLS estimates may imply correlation but not causality. We need to
determine the counterfactual post-acquisition performance of the target firms, that is the post-
acquisition performance of the target firms if they have not been acquired, to identify the
causality. However, this information cannot be observed.
We address this problem with the DID method. With a proper control group to proxy the
counterfactual performance of the treatment group, we then can use the DID regressions to
identify the causal treatment effect. The DID regression is modelled as follows:
Yipt ¼ c0 þ c1 TRi þ c2 TRi  ACQit þ Xi;ft2;t1g
0
C2 þ ft þ gj þ dp þ eipt ; (2)
where TRi = 1 for firm i from the treatment group and TRi = 0 for firms from the control
group. The other variables are as defined as in equation (1). c2 measures the causal treatment
effect of foreign acquisitions, that is the difference between the changes in the performance
of the treated and the controlled firms before and after the acquisitions.
We adopt two methods to construct the control groups to estimate the treatment effect of
foreign acquisitions.

b. Would-be Targets as the Control Group

In our data set, only 775 of the 1,245 announced foreign acquisition deals are eventually
completed. There are many reasons, including random factors and non-random factors, which
may explain why some of the deals are eventually executed, whereas some are not.16 If it is
mainly due to random factors, then we can use those would-be targets as our control group to
estimate the treatment effect of foreign acquisitions because all the 1,245 Chinese firms are
potential targets of foreign firms and they may share similar features that are not exhibited by
Chinese firms that are not selected by foreign firms. Those Chinese firms that are eventually
acquired consist of our treatment group. We notice that if many of the proposed acquisitions
are not executed due to some systematic non-random factors, our DID estimates could be
biased. Because of this concern, we also select an alternative control group for DID analysis
in the next two subsections.
Table 2 presents the treatment effects of foreign acquisitions when the performance of the
would-be targets is used as the counterfactual. Compared to the would-be targets, the actual
target firms have a significantly higher TFP, sales and fixed investment after the

15
To save space, we do not include the table of the OLS estimation results. They are available upon
request from the authors.
16
For example, Huiyuan, a large domestic juice producer, was an acquisition target of Coca-Cola, but
the deal was not approved by the Chinese antimonopoly offices.

© 2016 John Wiley & Sons Ltd

 TABLE 2

© 2016 John Wiley & Sons Ltd

DID Estimation with Would-Be Targets as Control Group

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9)
TFP TFP TFP Sales Sales Sales Fixed Asset Fixed Asset Fixed Asset
Investment Investment Investment

TR 9 ACQ 0.2507*** 0.1955*** 0.1958*** 0.2678** 0.1468*** 0.1483*** 0.3330** 0.1471** 0.1426**
(0.0692) (0.0597) (0.0612) (0.1128) (0.0455) (0.0439) (0.1365) (0.0560) (0.0569)
TR dummy 0.3508*** 0.0718 0.0839 0.4504*** 0.0417 0.0633 0.5000*** 0.0313 0.0160
(0.1067) (0.0687) (0.0670) (0.0985) (0.0564) (0.0553) (0.1204) (0.0387) (0.0373)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Province dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Firm controls (I) No Yes Yes No Yes Yes No Yes Yes
Firm controls (II) No No Yes No No Yes No No Yes
Observations 6,036 4,865 4,865 6,772 5,395 5,395 6,772 5,398 5,398
R2 0.1532 0.5908 0.5922 0.1912 0.7803 0.7813 0.1860 0.7988 0.8000

Notes:
(i) Firm controls (I) include Age, Age2, Employment, Asset, K/L and Asset/Liability.
(ii) Firm controls (II) add up Exporter, ForeignControl and StateControl dummies.
(iii) Robust standard errors are enclosed in parentheses.
(iv) ***, ** and * denote statistical significance at the 1%, 5% and 10% levels, respectively.
FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE
9
10 Q. LIU, R. LU AND L. D. QIU

acquisitions.17 This finding supports the basic OLS estimates and leads to the conclusion that
foreign acquisitions improve the performance of the target firms.18

c. Propensity Score Matching

We further address the causality issue using PSM for DID estimation. In this subsection,
we construct the control group using PSM. We then use the DID regressions in equation (2)
to identify the causal treatment effect.
We estimate the probability of foreign acquisitions using the Probit model, which includes
a large set of ex ante observable firm characteristics that can predict foreign acquisitions.
Given that all firm characteristics in the Probit model are lagged by one year, these character-
istics pertain to the pre-acquisition period. Following the literature (e.g. Arnold and Javorcik,
2009), we use ex ante productivity, size, age, capital intensity, average wage, financial
liquidity, foreign control and state control to predict foreign acquisitions.19 Year, industry and
province dummies are also included in the model. Based on the estimated propensity score
(p-score), we use the nearest neighbour method to construct the control group for the treated
firms.20
Table 3 shows the PSM estimation results.21 All variables, except for StateControl, have a
significant predictive power on the likelihood for firms to be acquired. Foreign acquirers pre-
fer targets with longer survival history, higher productivity, higher capital intensity, better
financial liquidity and foreign ownership. This observation confirms the cherry picking of for-
eign acquisitions in China. Our matched sample includes 3,201 observations, of which 50.6
per cent are for the treated firms and 49.4 per cent are for the controlled firms.
The matching quality is crucial for DID estimation. We run a series of tests, including the
balancing property test and the common support test, to ensure a high-quality matching. We
test whether the pre-acquisition covariates are balanced between the treatment and the control
groups. We perform three balancing tests as suggested in previous studies (Dehejia, 2005;
Smith and Todd, 2005), which results are presented in Table 4. The t-test results for the
means indicate the absence of a systematic difference among all covariates, except for State
Control. The regression results show no statistically significant difference between the treat-
ment and control groups in all observed aspects after controlling for propensity score in the

17
The effects are smaller in magnitude than the estimates in the above OLS estimates.
18
The DID estimation results only indicate the relative performance of the treatment group over the
control group. If the performance of the firms in the control group declines after the other firms are
acquired, we cannot assert that the performance of the firms in the treatment group has improved after
the acquisitions. To assert this, we run the OLS regressions based on model (1) for the firms in the con-
trol group. The estimates of all performance measures are not significantly different from 0. Therefore,
based on our DID results, we can conclude that foreign acquisitions improve the performance of the tar-
get firms. In fact, our OLS estimation results (not reported in this version) have also indicated the abso-
lute improvement of performance of the target firms.
19
Because the acquisitions occur in different years, we run the matching procedure once for firms
acquired in one year.
20
Nearest neighbour method matches each firm from the treatment group with the n firms from the con-
trol group that have the closest p-score. A bigger n reflects a highly efficient yet biased result. We set n
to 1 in our analysis to deliver the least biased result.
21
We generate estimation results for each year by estimating the propensity score year by year. We fol-
low Arnold and Javorcik (2009) and report the Probit model results based on the final matched sample.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 11

TABLE 3
Probit Results: Predicting Foreign Acquisitions

TFPt1 0.059*** Avwaget1 0.127***

(0.018) (0.039)
DTFP 0.002 Asset/Liabilityt1 0.061***
(0.004) (0.021)
Employmentt1 0. 197*** ForeignControlt1 0.361***
(0.019) (0.131)
Aget1 0.172** StateControlt1 0.194
(0.080) (0.171)
Age2t1 0.056*** K/Lt1 9 ForeignControlt1 0.016
(0.018) (0.026)
K/Lt1 0.141*** K/Lt1 9 StateControlt1 0.017
(0.019) (0.035)
No. of Observations 1,204,702
v2 1164.3206
Prob. > v2 0.000
Pseudo R2 0.180

Notes:
(i) Robust standard errors are enclosed in parentheses.
(ii) The results of the year, industry and province dummies are omitted to save space.
(iii) *** and ** 1% and 5% levels, respectively.

regression.22 The Hotelling T2 test cannot reject the null hypothesis that the means of all
covariates are jointly equal between the two groups. Therefore, our matching result satisfies
the balancing property pretty well.
We further test the common support condition for the matching procedure to guarantee that
the incomparable is not being compared (Dehejia and Wahba, 1999). This procedure divides
the matched sample by propensity score quintile and shows to what extent the acquired and
non-acquired firms are overlapped. Table 5 shows a large extent of overlapping between the
two groups in each quintile, which confirms the comparability of our sample.

d. Treatment Effect with PSM Firms as the Control Group

We investigate the treatment effect of foreign acquisitions based on the matched treatment
and control groups from PSM. Figure 2 presents the mean comparison of the outcome vari-
ables between the treatment group and the control group in 14 years (seven years pre-acquisi-
tion and seven years post-acquisition). The group means of each outcome variable almost
overlap prior to acquisition. In contrast, the gap in the means of the two groups begins to
diverge after the acquisition. Therefore, Figure 2 graphically shows the treatment effect.
We formally test the treatment effect using the DID regressions in equation (2). Table 6
reports the DID estimation results. Firm controls are progressively introduced to check the
robustness of the results to the changes in the specifications (short vs. long regressions). We

22
We test the balancing property by regressing each covariate in the Probit model on the quadratic
function of the p-score and on its interactions with the treatment dummy. If the F statistics cannot reject
the joint insignificance of the interaction terms, we conclude that the treatment dummy does not provide
more information about the covariate after controlling for the estimated p-score.

© 2016 John Wiley & Sons Ltd

12 Q. LIU, R. LU AND L. D. QIU

TABLE 4
Balancing Property Test

Variables Sample Mean t-test Regression

Approach

Treated Control t-value p-value F-stat p-value

TFPt1 Matched 4.005 3.950 0.709 0.479 1.760 0.134

DTFP Matched 0.063 0.021 0.594 0.553 0.000 1.000
Employmentt1 Matched 6.147 6.127 0.272 0.786 0.530 0.714
Aget1 Matched 1.969 1.946 0.536 0.592 0.490 0.742
Age2t1 Matched 4.693 4.653 0.214 0.831 0.650 0.625
K/Lt1 Matched 4.857 4.788 0.989 0.323 0.340 0.849
Asset/ Matched 0.274 0.263 0.287 0.774 1.360 0.244
Liabilityt1
Avwaget1 Matched 2.876 2.840 0.960 0.337 1.910 0.105
State Matched 0.272 0.196 3.415 0.001 2.380 0.050
Controlt1
Foreign Matched 0.539 0.501 1.425 0.154 0.130 0.972
Controlt1
No. of 935 911
observations
Hotelling T2 = 12.053 F-stat = 1.201 p = 0.285 No. of Observations = 1,274
T2 test

add a single firm-control (StateControl) into the short regression because the simple mean is
not balanced in the matched samples. Afterwards, we add all firm controls that are used in
the OLS regressions.
The DID estimation confirms the result that foreign acquisitions produce statistically signif-
icant improvements in the TFP, sales and fixed asset investment of the target firms. The full
specification regressions in columns (3), (6) and (9) show that the TFP, sales and fixed asset
investment of the target firms increase by 12.01, 15.01 and 31.23 per cent, respectively.23

4. FACTORS AFFECTING THE EFFECTS OF FOREIGN ACQUISITIONS

We explore in this section the various factors that affect the influence of foreign acquisi-
tions on the performance of the target firms.

a. Technology Gap
The target firm benefits from the acquisition when the acquirer possesses a more advanced
technology or management technique. However, the extent of such benefits depends on the
technology gap between the acquirer and the target prior to the acquisition. Two conflicting
effects may be observed. On the one hand, a larger technology gap implies that the technol-
ogy of the acquirer is much more advanced than that of the target, which gives a larger room

23
The same discussion and results in Footnote 18 for the would-be target control group also apply here
for the PSM control group.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 13

TABLE 5
Common Support Test

p-Score quintile Treatment Control Total

Group Group Observations

First 213 239 452

Second 243 209 452
Third 245 207 452
Fourth 237 215 452
Fifth 221 231 452
Total observations 1,159 1,101 2,260

Notes:
(i) Given that we use year-by-year matching procedure, some matched firms from either treatment or control group
have missing propensity scores in some years.
(ii) This explains the 941 missing observations as compared to the 3,201 sample observations.

FIGURE 2
Mean Comparison between the Treatment Group and the Control Groups
3.6 3.8 4 4.2 4.4 4.6

13
Sales (log)
12.5
TFP (log)

12
11.5
–7
–6
–5
–4
–3
–2
–1
0
1
2
3
4
5
6
7

–7
–6
–5
–4
–3
–2
–1
0
1
2
3
4
5
6
7
Period Period
Treatment Group Control Group Treatment Group Control Group
Fixed Investment (log)
10
9.5
9
8.5

–7
–6
–5
–4
–3
–2
–1
0
1
2
3
4
5
6
7

Period
Treatment Group Control Group

for the target to improve its technology after the acquisition. On the other hand, a larger tech-
nology gap implies that the target has a low knowledge base and has a lower capability to
absorb the advanced technology of the acquirer. Therefore, the degree to which foreign acqui-
sitions improve the performance of the target firms depends on many factors. We use foreign
acquisitions in China to explore this issue empirically.

© 2016 John Wiley & Sons Ltd

 14

TABLE 6
DID Estimation with PSM Firms as Control Group

Variables (1) (2) (3) (4) (5) (6) (7) (8) (9)
TFP TFP TFP Sales Sales Sales Fixed Asset Fixed Asset Fixed Asset
Investment Investment Investment

TR 9 ACQ 0.3186** 0.2977** 0.1207* 0.4260** 0.4001** 0.1505** 0.3189*** 0.3180*** 0.3123***
(0.1305) (0.1294) (0.0633) (0.1589) (0.1619) (0.0688) (0.0121) (0.0124) (0.0093)
TR dummy 0.0696 0.0641 0.0393 0.0951 0.0857 0.0193 0.0696*** 0.0693*** 0.0646***
(0.0899) (0.0950) (0.0538) (0.0847) (0.0900) (0.0438) (0.0077) (0.0080) (0.0066)
Year dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Industry Dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Province Dummy Yes Yes Yes Yes Yes Yes Yes Yes Yes
Asset/Liabilityt < TR No Yes Yes No Yes Yes No Yes Yes
Other firm controls No No Yes No No Yes No No Yes
Observations 3,089 3,089 3,076 3,198 3,198 3,185 3,108 3,108 3,095
R2 0.1972 0.2120 0.6258 0.2652 0.2846 0.8147 0.4618 0.4626 0.4648
Q. LIU, R. LU AND L. D. QIU

Notes:
(i) ‘Other Firm Controls’ are the same as those that are presented in Table 2 without StateControl.
(ii) Robust standard errors are enclosed in parentheses.
(iii) ***, ** and * indicate statistical significance at the 1%, 5% and 10% levels, respectively.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 15

TABLE 7
Technology Gap and Performance

Variables (1) (2) (3) (4) (5) (6)

TFP Sales Fixed Asset TFP Sales Fixed Asset
Investment Investment

ACQ 9 Tech-Gap 0.0600*** 0.0455*** 0.0479***

(0.0168) (0.0144) (0.0141)
ACQ 9 Tech-Gap 0.0823*** 0.0527** 0.0486**
per capita (0.0288) (0.0223) (0.0187)
ACQ 0.3630*** 0.2736*** 0.3462*** 0.0995 0.0863 0.1430*
(0.0667) (0.0710) (0.0647) (0.0754) (0.0579) (0.0789)
Tech-Gap 0.0195 0.0194 0.0155*
(0.0138) (0.0124) (0.0089)
Tech-Gap per capita 0.0052 0.0066 0.0416***
(0.0225) (0.0207) (0.0119)
Firm controls Yes Yes Yes Yes Yes Yes
Observations 2,660 2,938 2,941 2,660 2,938 2,941
R2 0.5361 0.7460 0.7726 0.5357 0.7453 0.7715

Notes:
(i) Robust standard errors are enclosed in parentheses.
(ii) *** and ** indicate statistical significance at the 1% and 5% levels, respectively.

Due to limited data (especially on foreign acquirers), we are unable to construct a variable
that can measure the exact pre-acquisition technology gap between the foreign acquirer and
the Chinese target firm. Therefore, we use the country-level technology gap as a proxy for the
firm-level technology gap. This is based on the premise that firms from highly advanced
countries have more sophisticated technologies. We use two measures of technology gap,
namely Tech-Gap and Tech-Gap per capita, in each acquisition to denote the difference
between the total number of resident patent filing in the country of the acquirer and that in
China as well as the difference between the number of resident patent filing per capita in the
country of the acquirer and that in China, respectively.24
We introduce the interaction terms of Tech-Gap and ACQit as well as that of Tech-Gap per
capita and ACQit in equation (1). Table 7 presents the regression results, with columns (1) to
(3) showing the regression results for the technology gap using the total patent number and col-
umns (4) to (6) showing the regression results for the technology gap using the number of
patents per capita. All coefficients of the interaction terms are positive and statistically signifi-
cant. Therefore, we conclude that the performance-enhancing effects of foreign acquisitions are
stronger when a larger technology gap is observed between the acquirers and the target firms.

b. Share of Foreign Ownership

The performance of the target firms after foreign acquisitions is affected by many factors.
The transfer of technologies from the acquirers to the targets represents a key factor. Foreign
acquirers are very concerned about the appropriation of their technologies and management
know-how when acquiring firms from countries with weak intellectual property rights (IPR).

24
All patent data are available from the World Development Indicators of the World Bank.

© 2016 John Wiley & Sons Ltd

16 Q. LIU, R. LU AND L. D. QIU

A foreign acquirer with a larger share of equity in the local target firm has a better control
over the IPRs of the local firm, therefore is more willing to transfer better technologies to its
target. This claim is supported by evidence, which claims that multinational acquirers transfer
more technology to their majority and wholly-owned subsidiaries than to their minority-owned
affiliates (Mansfield and Romeo, 1980; Ramachandran, 1993; Desai et al., 2004).
However, the performance of the target firms also depends on the efforts of their local part-
ners. The incentives of these firms are generally aligned with their ownership shares. When there
is synergy effect between the technology transfer and local efforts, we expect that a smaller local
ownership may adversely affect the performance of the target firms after the acquisitions. Japa-
nese investors in foreign countries are found to benefit from joint ventures (as opposed to
wholly-owned green-field investments) by providing them with access to local suppliers (Belder-
bos et al., 2001). Javorcik and Spatareanu (2008) divide foreign ownership into two groups,
namely wholly owned (with 100 per cent foreign ownership) and partially owned or joint ven-
tures (with 10 to 99 per cent foreign ownership), and find that vertical spillovers are associated
with joint ventures but are not associated with wholly-owned subsidiaries.25 By contrast, Aitken
and Harrison (1999) use foreign equity share, which is a continuous measure of foreign control,
and find that this variable is positively correlated with the productivity of local plants with for-
eign equity participation. However, this relationship is only observed among small firms.
These findings imply that the effect of foreign acquisitions on the performance of the target
firms may not be monotonic with respect to the degree of equity that is held by the acquirers.
Similar to Aitken and Harrison (1999), we use the continuous measure of foreign equity share
and explore the possible non-monotonic relationship between foreign equity participation and
the performance of the target firms. To this end, we replace the acquisition dummy ACQit in
equation (1) with Foreign Share, which represents the percentage of foreign equity in the tar-
get firm after the acquisition. To account for the possibility of a non-linear relationship
between foreign equity participation and the performance of the target firms, we add the
square term of foreign share (Foreign Share Squared) in the regressions.
Table 8 presents the OLS regression results. An inverted-U relationship is observed
between the performance of the target firms (productivity, sales and fixed asset investment)
and the equity share of the foreign acquirers. The turning points are all around 55 per cent.
The inverted-U relationship indicates that for low foreign equity shares (below 55 per cent), a
higher equity control by foreign acquirers is associated with larger performance improvement
of the target firms. By contrast, for high foreign equity shares (above 55 per cent), better per-
formance is associated with targets with lower foreign equity participation.
The inverted-U relationship also indicates the possibility for target firms with very high
foreign shares after the acquisitions to experience a decline in their performance. To explore
this possibility, we run the baseline regression model (1) using a subsample that includes all
acquisitions with foreign ownerships of above 75 per cent in the target firms after acquisi-
tions. TFP has a statistically significant estimate of 0.2905, sales have a statistically significant
estimate of 0.2172, and fixed asset investment has a statistically significant estimate of
0.1106. Therefore, foreign acquisitions improve the performance of the target firms, even
those with very high foreign control.

25
Blomstrom and Sjoholm (1999) divide foreign-affiliated firms in Malaysia into two groups, in which
one has a minority foreign ownership and the other has a majority foreign ownership. They find that
both groups are associated with a higher productivity as compared to Malaysian domestic firms.
However, these two types of firms do not exhibit differential spillover effects.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 17

TABLE 8
Foreign Ownership and Performance

Variables (1) (2) (3)

TFP Sales Fixed Asset
Investment

Foreign share 1.2191** 1.0890*** 1.1923***

(0.4629) (0.3114) (0.3043)
Foreign share squared 1.1408** 0.9964** 1.0827***
(0.5211) (0.3607) (0.3133)
Firm controls YES YES YES
Observations 2,748 3,021 3,022
R2 0.5482 0.7462 0.7839

Notes:
(i) Robust standard errors are enclosed in parentheses.
(ii) *** and ** indicate statistical significance at the 1% and 5% levels, respectively.

c. Types of Foreign Acquisitions

Foreign acquisitions can be classified into three categories, namely horizontal acquisitions,
vertical acquisitions and conglomerate acquisitions. Following the widely used criterion in
previous literature (e.g. Gugler et al., 2003), we use the 2002 US input–output table to clas-
sify all acquisition deals in our data set. An acquisition deal is classified as horizontal if both
the acquirer and the target are from the same industry at the four-digit SIC level. An acquisi-
tion deal is classified as vertical if the production of a one-dollar product in the industry to
which the acquirer (target) belongs requires at least a 10-cent input from another industry to
which the target (acquirer) belongs. Otherwise, the deal is considered a conglomerate acquisi-
tion. Among the 775 completed acquisitions in our sample, 221 (28.52 per cent) are classified
as horizontal, 21 (2.71 per cent) are classified as vertical, and 533 (68.77 per cent) are classi-
fied as conglomerate. This distribution is comparable to that of worldwide M&As found by
Gugler et al. (2003).
We run OLS regressions for the subsamples of horizontal, vertical and conglomerate acqui-
sitions, which results are reported in Table 9. All three performance measures are improved
under conglomerate acquisitions, both TFP and fixed asset investment increase under horizon-
tal acquisitions, and no significant changes are observed under vertical acquisitions. This pre-
sents a surprising result because foreign acquirers are generally expected to be more willing
to transfer advanced technologies and managerial experiences to vertically related targets
(Javorcik and Spatareanu, 2008; Bandick, 2011). Compared to horizontal acquisitions, we also
expect that foreign acquirers have no directly related technology to transfer to their targets
under conglomerate acquisitions.

5. CONCLUSION
This paper examines the effects of foreign acquisitions on the performance of Chinese tar-
get firms. We perform a DID estimation with carefully constructed control groups. We find
that foreign acquisitions in China significantly enhance the productivity, sales and fixed asset
investment of the target firms. These effects are stronger in acquisitions in which a larger
technology gap is observed between the acquirer and the target. The post-acquisition

© 2016 John Wiley & Sons Ltd

18 Q. LIU, R. LU AND L. D. QIU

TABLE 9
OLS Results for Various Types of Acquisitions

Variables (1) (2) (3)

TFP Sales Fixed Asset Investment

Horizontal Acquisitions
ACQ 0.2281** 0.0835 0.2255**
(0.0962) (0.0671) (0.0824)
Observations 952 1,029 1,033
R2 0.645 0.8203 0.8429
Vertical Acquisitions
ACQ 0.5104 0.1079 0.0734
(0.3917) (0.2234) (0.0680)
Observations 91 108 107
R2 0.6808 0.9298 0.9679
Conglomerate Acquisitions
ACQ 0.1963** 0.1775*** 0.2016***
(0.0865) (0.0560) (0.0595)
Observations 1,929 2,131 2,130
R2 0.5516 0.7413 0.7694

Notes:
(i) Robust standard errors are enclosed in parentheses.
(ii) *** and ** indicate statistical significance at the 1% and 5% levels, respectively.

performance of the targets exhibits an inverted-U shape with respect to the target firm equity
share of the foreign acquirers.
Our paper contributes to the existing literature by providing additional evidence on the pos-
itive effects of foreign acquisitions in developing countries. However, China presents a special
case. Although China is the largest developing country in the world with a very large domes-
tic market and technology base, the country has a very low income per capita. Further
research need be conducted in this field to generate a more complete picture of how foreign
acquisitions affect the target firms in both developed and developing countries. Future studies
must identify the necessary features, conditions and mechanisms that can influence the perfor-
mance-enhancing effects of foreign acquisitions on the target firms.

REFERENCES

Aitken, B. and A. E. Harrison (1999), ‘Do Domestic Firms Benefit From Direct Foreign Investment?
Evidence From Venezuela’, American Economic Review, 89, 3, 605–18.
Almeida, R. (2007), ‘The Labor Market Effects of Foreign Owned Firms’, Journal of International
Economics, 72, 1, 75–96.
Arnold, J. M. and B. S. Javorcik (2009), ‘Gifted Kids or Pushy Parents? Foreign Direct Investment and
Plant Productivity in Indonesia’, Journal of International Economics, 79, 1, 42–53.
Bandick, R. (2011), ‘Foreign Acquisition, Wages and Productivity’, The World Economy, 34, 6, 931–51.
Belderbos, R., G. Capannelli and K. Fukao (2001), ‘Backward Vertical Linkages of Foreign Manufactur-
ing Affiliates: Evidence From Japanese Multinationals’, World Development, 29, 1, 189–208.
Benfratello, L. and A. Sembenelli (2006), ‘Foreign Ownership and Productivity: Is the Direction of
Causality so Obvious?’, International Journal of Industrial Organization, 24, 4, 733–51.
Bertrand, O. and H. Zitouna (2008), ‘Domestic Versus Cross-border Acquisitions: Which Impact on the
Target Firms’ Performance?’, Applied Economics, 40, 17, 2221–38.

© 2016 John Wiley & Sons Ltd

 FOREIGN ACQUISITIONS AND TARGETS’ PERFORMANCE 19

Blomstrom, M. and F. Sjoholm (1999), ‘Foreign Direct Investment, Technology Transfer and Spillovers:
Does Local Participation With Multinationals Matter?’, European Economic Review, 43, 4–6, 915–
23.
Brandt, L., J. Van Biesebroeck and Y. F. Zhang (2012), ‘Creative Accounting or Creative Destruction?
Firm-level Productivity Growth in Chinese Manufacturing’, Journal of Development Economics, 97,
2, 339–51.
Chen, W. J. (2011), ‘The Effect of Investor Origin on Firm Performance: Domestic and Foreign Direct
Investment in the United States’, Journal of International Economics, 83, 2, 219–28.
Conyon, M. J., S. Girma, S. Thompson and P. W. Wright (2002), ‘The Productivity and Wage Effects
of Foreign Acquisition in the United Kingdom’, Journal of Industrial Economics, 50, 1, 85–102.
Davies, S. W. and B. R. Lyons (1991), ‘Characterizing Relative Performance – the Productivity Advan-
tage of Foreign Owned Firms in the UK’, Oxford Economic Papers, 43, 4, 584–95.
Dehejia, R. (2005), ‘Practical Propensity Score Matching: A Reply to Smith and Todd’, Journal of
Econometrics, 125, 1–2, 355–64.
Dehejia, R. H. and S. Wahba (1999), ‘Causal Effects in Nonexperimental Studies: Reevaluating the
Evaluation of Training Programs’, Journal of the American Statistical Association, 94, 448, 1053–62.
Desai, M. A., C. F. Foley and J. R. Hines (2004), ‘The Costs of Shared Ownership: Evidence From
International Joint Ventures’, Journal of Financial Economics, 73, 2, 323–74.
Djankov, S. and B. Hoekman (2000), ‘Foreign Investment and Productivity Growth in Czech Enter-
prises’, World Bank Economic Review, 14, 1, 49–64.
Doms, M. and J. Jensen (1998), ‘Comparing Wages, Skills and Productivity between Domestically and
Foreign Owned Manufacturing Establishments in the United States’, in R. E. Baldwin, R. E. Lipsey
and J. D. Richardson (eds.), Geography and Ownership as Bases for Economic Accounting (Chicago,
IL: University of Chicago Press), 235–58.
Du, J. and S. Girma (2009), ‘The Effects of Foreign Acquisition on Domestic and Export Markets
Dynamics in China’, The World Economy, 32, 1, 164–77.
Girma, S. and H. Gorg (2007a), ‘Evaluating the Foreign Ownership Wage Premium Using a Difference-
in-Differences Matching Approach’, Journal of International Economics, 72, 1, 97–112.
Girma, S. and H. Gorg (2007b), ‘Multinationals’ Productivity Advantage: Scale or Technology?’,
Economic Inquiry, 45, 2, 350–62.
Girma, S., Y. D. Gong, H. Gorg and S. Lancheros (2012), ‘Foreign Ownership Structure, Technology
Upgrading and Exports: Evidence From Chinese Firms‘, Kiel Working Paper (Kiel: Kiel Institute for
the World Economy).
Griffith, R. (1999), ‘Using the ARD Establishment Level Data to Look at Foreign Ownership and Pro-
ductivity in the United Kingdom’, Economic Journal, 109, 456, F416–42.
Gugler, K., D. Mueller, B. Yurtoglu and C. Zulehner (2003), ‘The Effects of Mergers: An International
Comparison’, International Journal of Industrial Organization, 21, 5, 625–53.
Harris, R. and C. Robinson (2002), ‘The Effect of Foreign Acquisitions on Total Factor Productivity:
Plant-level Evidence From UK Manufacturing, 1987–1992’, Review of Economics and Statistics, 84,
3, 562–68.
Helpman, E., M. Melitz and S. Yeaple (2004), ‘Export Versus FDI With Heterogeneous Firms’, Ameri-
can Economic Review, 91, 4, 300–16.
Javorcik, B. S. and M. Spatareanu (2008), ‘To Share or not to Share: Does Local Participation Matter
for Spillovers From Foreign Direct Investment?’, Journal of Development Economics, 85, 1–2, 194–
217.
Karpaty, P. (2007), ‘Productivity Effects of Foreign Acquisitions in Swedish Manufacturing: The FDI
Productivity Issue Revisited’, International Journal of the Economics of Business, 14, 2, 241–60.
Levinsohn, J. and A. Petrin (2003), ‘Estimating Production Functions Using Inputs to Control for Unob-
servables’, Review of Economic Studies, 70, 2, 317–41.
Mansfield, E. and A. Romeo (1980), ‘Technology Transfer to Overseas Subsidiaries by United States
Based Firms’, Quarterly Journal of Economics, 95, 4, 737–50.
Markusen, J. R. (1995), ‘The Boundaries of Multinational Enterprises and the Theory of International
Trade’, Journal of Economic Perspectives, 9, 2, 169–89.
Markusen, J. R. (2002), Multinational Firms and the Theory of International Trade (Cambridge, MA:
MIT Press).

© 2016 John Wiley & Sons Ltd

20 Q. LIU, R. LU AND L. D. QIU

Ramachandran, V. (1993), ‘Technology-transfer, Firm Ownership, and Investment in Human-capital’,

Review of Economics and Statistics, 75, 4, 664–70.
Salis, S. (2008), ‘Foreign Acquisition and Firm Productivity: Evidence From Slovenia’, The World Econ-
omy, 31, 8, 1030–48.
Smith, J. A. and P. E. Todd (2005), ‘Does Matching Overcome LaLonde’s Critique of Nonexperimental
Estimators?’, Journal of Econometrics, 125, 1–2, 305–53.
Tybout, J. R. (2000), ‘Manufacturing Firms in Developing Countries: How Well Do They Do, and
Why?’, Journal of Economic Literature, 38, 1, 11–44.
Yeaple, S. (2003), ‘The Complex Integration Strategies of Multinationals and Cross Country Dependen-
cies in the Structure of Foreign Direct Investment’, Journal of International Economics, 60, 2, 293–
314.

© 2016 John Wiley & Sons Ltd