The labor market effect of foreign acquisitions: Evidence from Chinese manufacturing firms

• We investigate the impacts of foreign acquisitions on the labor market in a developing country, i.e., China.
• We combine the propensity score matching and the difference-in-differences techniques.
• The impacts in China are different from but also comparable to those in developed countries.
• The effects are heterogeneous regarding acquirer origins, industry affiliations and acquisition strategies.

The potential impacts of foreign acquisitions have long been debatable in both academic and policy circles in China, which have more or less shaped China's regulation policy regarding foreign acquisitions. This paper examines the causal effect of foreign acquisitions on the labor market in China with self-constructed firm level panel data. We combine the propensity score matching and the difference-in-differences techniques in our estimation to deal with the potential selection biases in acquisitions. Our results show that the impacts of foreign acquisitions in China are different from but also comparable to those in developed countries found in the literature. Specifically, foreign acquisitions have significant positive effects on the levels of wage and employment of target firms, but mildly negative impact on employment growth and insignificant impact on wage growth. The impacts show heterogeneities. We also check the potential channels of the impacts.