Institutionalized discrimination between foreign and domestic investors exists in many countries. We examine the differential effects of foreign investor protection (FIP) and domestic investor protection (DIP) on cross-border mergers and acquisitions (M&As). To guide our empirical analysis, we first present a model in which, when faced with differentiated FIP and DIP, a firm chooses between investing domestically and investing in a foreign country via M&A. The model predicts that cross-border M&As are more likely to occur when in the target country FIP becomes stronger or DIP becomes weaker. The effects are more pronounced in contract-intensive industries. We then construct a data set of worldwide cross-border M&A deals over the period of 1988–2014 and empirically test the model predictions. Our empirical findings support the theoretical predictions. In addition, we find that the effects are stronger (a) for M&As with larger acquired shares, (b) in target countries farther away from the home countries, and (c) in target countries with better financial development.