The Cost of Being Foreign: Evidence from a Nationally Representative Experiment in the Us

Abstract: We conduct a conjoint experiment with a nationally representative sample of 3,010 US residents to assess their opinions on the acquisition of domestic companies by foreign firms. On average, US residents are 16 percentage points less likely to support a foreign firm as the preferred acquirer to an American company, compared to an identical domestic firm. We also show that there is a tension between nationalistic preferences and economic incentives. Still, it is quite hard for foreign firms to overcome their disadvantage by offering more favorable deal conditions. Additionally, we demonstrate that liability of foreignness (LOF) is considerably more complex than previously theorized by showing that LOF is not only a firm-level phenomenon, but also runs at the ownership level. Finally, we argue that both practitioners and strategy and IB scholars should pay more attention to the effects of public opinion, as understanding how the local population feel about foreign acquisitions can be quite important to managers when planning their international expansions and when entering negotiations to acquire a foreign company.