Two Essays on Foreign Direct Investment and Firms’ Performance: Foreign Capital Inflow and Chinese Cross-border Mergers and Acquisitions

This thesis is organized in to two chapters which constitute two independent working papers. The first chapter uses Chinese firm level data from 2001 to 2007 and applies a propensity score matching method combined with a difference-in-differences approach to examine the direct causal link between Inward Foreign Direct Investment and various aspects of Chinese firms’ performance. I divide China into four economic regions and then subdivide the origin of foreign investment into HMT-investment (within the Greater China Area) and other foreign investment (outside the Greater China Area). The results indicate that the progress of the IFDI market in China is not evenly balanced with in the four economic regions, while the different origins of foreign investment produce different effects. The only exception is the export sector, in which IFDI from all economies improves the export performance of a Chinese firm after it becomes a foreign-invested firm. The second chapter combines data from Chinese listed firms’ annual reports, the Chinese stock market financial statements database and the Zephyr database from 2001 to 2015 to examine how acquirers’ operating performance change s after cross-border M&A activities, and uses entrepreneurial orientation as a moderating factor to test whether or not firms’ performance during cross-border M&A is affected by different degrees of entrepreneurial orientation. The results obtained for the whole sample show that the performance of Chinese listed firms is fluctuant after cross-border M&A within the sample years. It increases one year after the acquisition but drops two years later and then follows an increasing trend again. The moderating factor of entrepreneurial orientation is not significant for the sample as a whole. However, after dividing the sample into separate industry groups, it becomes clear that different industries have their own characteristics. For example, entrepreneurial orientation helps Chinese listed firms to adapt to the post-acquisition situation and even to improve their performance to some extent in the metal mining industry and the business services industry.