The inter-regional effect of fair competition: evidence from the fair competition review system and cross-regional mergers and acquisitions of enterprises

Using a difference-in-differences approach on Chinese listed firms (2013–2022), this paper examines how the Fair Competition Review System (FCRS) affects cross-regional mergers and acquisitions (M&As). The empirical results reveal a fundamental activity-efficiency paradox: while the FCRS significantly boosts M&A activity, these institutionally-driven transactions fail to generate long-term value. We argue this paradox stems from a capability trap where the removal of protection renders firms’ existing protection-oriented capabilities obsolete, forcing them into defensive, survival-driven M&As – a form of passive reconfiguration. Mechanism and heterogeneity analyses confirm these dynamics, showing the M&A wave is driven by competition, credit, and subsidy channels, and is more pronounced for non-state-owned enterprises and in highly segmented regions. Our findings offer a crucial insight: market liberalization can trigger inefficient corporate behaviour when firms lack appropriate capabilities, highlighting the need to balance barrier removal with capability building.