Financial Protectionism, M&A Activity, and Shareholder Wealth

• In Event: Government and Law

Abstract

This paper examines changes in M&A activity and stock market valuations around a significant law
change that increased the protection of some U.S. industries against foreign acquirers. The Foreign
Investment and National Security Act of 2007 (FINSA) dramatically increased scrutiny of M&A
activity by the Committee on Foreign Investment in the United States (CFIUS) in a large array of U.S.
industries deemed critical to national security. Using difference-in-differences (DiD) and triple-DiD
research designs, we find that foreign takeovers of FINSA-affected firms declined by 68% relative to
our control group of unaffected firms. We further find that FINSA-affected firms lost between 1.12%
and 2.15% of their value on average compared to the control group over a two or three-day window
surrounding five events related to the passage and implementation of FINSA. Our findings suggest
that financial protectionism, manifested in increased CFIUS scrutiny of M&A activity, harms
shareholder wealth through a less liquid market for corporate control.

Authors

• David Godsell, University of Illinois-Urbana-Champaign

• Ugur Lel, University of Georgia

• Darius Miller, Southern Methodist University