Going out to innovate more at home: Impacts of outward direct investments on Chinese firms' domestic innovation performance

This study explores the effects of cross-border mergers & acquisitions (CBMA) on domestic innovation of Chinese firms. We build a new panel dataset that matches information on CBMA and innovation activities for China's publicly listed firms. We rely on matching techniques combined with a difference-in-differences estimator to study the causal effects of CBMA respectively on firms' investments in innovation, innovation outputs, and financial performance. The main findings reveal that CBMA has both a positive impact on firms' R&D spending and number of patent applications, no statistically significant effect on the number of granted patents or on the quality of those patents, and a negative effect on firms' financial performance. These results depend, however, on the type of CBMA (horizontal or vertical), destination country (OECD or non-OECD), and the technological intensity (high-tech or not) of the acquirer and target firm. Overall, the findings bring into question whether CBMAs, and China's going-out strategy, will significantly boost its indigenous innovation capabilities.