The Rationale of Foreign Investment National Security Review

This paper explains the rationale of the foreign mergers and acquisitions (M&As) national security review mechanism. A successful international transaction requires cooperation of four involved parties, the acquiring corporation, the acquired corporation, the home country and the host country. Only when all of the four parties are able to benefit from a transaction, can they come to an agreement on the cross-border M&A. The host country will block a foreign acquirer's bid if the transaction may have negative impact on the country's security, and the negative impact exceeds interests the transaction might bring about. The host country's "say no to foreign investment" authority roots from the externality of foreign entities, the supremacy of national sovereignty and the priority of national security interest, and the lack of uniform international investment regulations.