Impact of the FIRRMA Act of 2018 on Foreign Venture Capital, Private Equity, and Mergers & Acquisitions Deal Activity in the United States

Abstract

The FIRRMA Act of 2018 passed by President Trump drastically expanded the scope and mandate of the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that screens foreign investment in the US. This paper investigates the effects of the FIRRMA Act on foreign mergers and acquisitions (M&A), private equity (PE), and venture capital (VC) deal activity in the United States. A series of differences in differences regressions and event study models were used to measure the effects of deal activity using deal type, industry, and foreign investor location specifications as explanatory variables. After FIRRMA, we found an increase in foreign VC deal activity relative to foreign M&A deal activity, no broad industry effects consistent with the defined mandate in FIRRMA, sector-specific deal activity decline in Healthcare VC and M&A and Consumer VC, and a decline in Chinese VC deal valuations relative to non-Chinese foreign VC deal valuations. Overall, this study shows the effects of FIRRMA on foreign deal activity in the US were more focused and broadly less pronounced than anticipated by many scholars.