Foreign Acquisitions and Environmental Performance: From the Perspective of Pollution Offshoring

ABSTRACT The lack of consensus in academic research on the environmental effects of foreign ownership prompts us to re‐examine this issue. Using 3847 foreign acquisition cases in China from 1998 to 2013, we employ the PSM‐DID method to investigate the impact of foreign acquisitions on the pollution emissions of acquired plants. Our findings reveal an increase in sulphur dioxide (SO 2 ) emissions for acquired plants, a result that remains consistent when considering SO 2 emission intensity. We attribute this finding primarily to pollution offshoring: following foreign acquisitions, target plants shift their operations towards exporting intermediate goods, particularly pollution‐intensive ones. To support this shift, acquired plants tend to reduce R&D investments and expand production capacity by adding more production lines, which realigns their production structure towards pollution‐intensive industries. Consequently, the acquired plants are unlikely to gain positive environmental spillovers from the acquisition. Finally, we also evaluate the economic performance of the acquired plants and the impact of foreign divestment, finding that foreign investment primarily benefits the host country through financial channels rather than (green) technological channels.