Is Targets’ Business Experience Valuable to Acquirers? Evidence from the U.S. Grant of PNTR Status to China

We exploit the U.S. grant of Permanent Normal Trade Relations (PNTR) status to China as a quasi-policy shock to corporate demand for targets with China-related business experience, and investigate how such a shock affects U.S. acquirers’ target selection and performance. U.S. firms are more likely to acquire targets with Chinese experience following PNTR. These acquirers realize better announcement returns and post-acquisition operating performance, enjoy higher synergy gains, and are more likely to avoid large losses than other acquirers after PNTR. Acquisitions of targets with Chinese experience benefit U.S. acquirers by lowering operating expenses, purchasing more inputs from China, selling more outputs to China, and establishing more social networks in China post-PNTR. Overall, this paper reveals that targets with complementary knowledge in local businesses improve decision making for acquirers entering the foreign market via minimizing information gap