Abstract:

In this paper, we study how bilateral trading tensions affect the market valuation of Chinese firms’ cross-border mergers and acquisitions outside the United States. Using 6,612 outbound M&A announcements from 2000 to 2024, we show that higher U.S.–China trading tensions significantly reduce acquirer cumulative abnormal returns for offshore deals, while having no effect on domestic transactions. In contrast, broad geopolitical risk measures are insignificant, indicating that investors price targeted bilateral tensions rather than diffuse global uncertainty. The effect is found to be nonlinear and strongest during the 2018–2019 trade war period. The mechanism analysis shows that elevated tensions depress investor sentiment and increase short-selling activity, jointly explaining a substantial share of the valuation impact. These results are important and highlight that the influence of U.S.–China trade tensions extends beyond acquisitions in the United States to include Chinese broader offshore investments.