All politics starts local: Liability of stateness and subnational labor markets

Abstract

State-controlled acquirers face a liability of stateness (LoS) because host country stakeholders consider them less legitimate and as representatives of foreign political power. We argue that due to LoS, state-owned enterprises (SOEs) face more regulatory scrutiny in cross-border acquisitions than comparable private-owned enterprises (POEs). Applying a voting behavior perspective, we further posit this increased regulatory scrutiny is reduced when acquisitions occur via intermediaries, and in host communities less averse to state ownership due to local labor conditions. Using a sample of cross-border acquisitions with acquirers from 44 economies and targets in 50 US states, we find that SOEs are 9% more likely to attract additional regulatory scrutiny than POEs. However, this likelihood decreases with indirect acquisitions and in host regions with high unemployment.