Economic impact of political barriers to cross-border acquisitions: An empirical study of CNOOC's unsuccessful takeover of Unocal

In 2005, the US Congress challenged the acquisition by CNOOC (a Chinese state-owned enterprise) of Unocal (a US firm). This challenge creates a political barrier for foreign companies to acquire US oil companies. This paper examines the stock price reaction of US oil companies to this political opposition. Using an event study methodology, we find that this political barrier resulted in a substantial decline in the market value of US oil companies. For a period of 44 days, during which six anti-CNOOC-takeover political events occurred, the cumulative decline in the market value of a portfolio of 13 US oil refining firms was $47.5 billion and that of a portfolio of 66 US oil and gas exploration firms was $11.4 billion. This study is the first to analyze and quantify the stock price reaction of US non-merging firms to political barriers to cross-border acquisitions. It also has a policy implication regarding the recent enactment of the Foreign Investment and National Security Act of 2007.