Foreign M&A and inventory adjustment: Evidence from Chinese manufacturers

With China’s deepening opening-up to the world, its favorable business environment and investment attraction policies appeal to a growing number of multinational enterprises to enter the Chinese market. As a major form of FDI, foreign M&A has raised scholars' attention to explore its role in China's economic development. As one of these academic explorations, this study makes a pioneering effort to identify the inventory adjustment effect of Foreign M&A by adopting a large-scale, firm-level dataset from the Annual Survey of Industrial Firms (ASIF) database and the Bureau Van Dijk (BVD) database. The conclusions are presented as follows: (1) Foreign M&A has a significantly positive impact on non-finished products inventory through the effect of market scale. The result remains robust when we controlled a series of control variables, using PSM+DID method and carrying out heterogeneity test. (2) Foreign M&A has a significantly negative impact on the overall inventory. In addition, foreign M&A also shows a preference for top performers, a tendency that enterprises with higher total assets and capital, higher output value, higher added value, export trade competitiveness and high sales income are prone to be targets hunted by multinational enterprises.