The uncertainty of RMB exchange rate expectation and foreign investment: Evidence from Cross-border M&As in China

This paper investigates the causal effect of the RMB exchange rate expectation uncertainty on corporate cross-border mergers and acquisitions (M&As) using China's A-share listed firms from 2005 to 2022. The results show that the increasing RMB exchange rate expectation uncertainty significantly promotes corporate cross-border M&As. A one-unit standard deviation of the RMB exchange rate expectation is associated with a 0.140-unit standard deviation increase in corporate cross-border M&As. The results are robust for replacing core variables, changing estimation methods, model setting, and addressing endogenous problems. The above effect is more pronounced for firms engaging in discontinuous M&As, partial M&As, higher operational and exchange risks, lower financing constraints, and firms located in Eastern regions. We also find that increased risk-taking capacity and greater market competition are essential channels through which RMB exchange rate expectation uncertainty promotes corporate cross-border M&As. This paper offers a fresh insight into the role of exchange rate expectations in promoting cross-border M&A activities and optimizing resource allocation in international markets.