Foreign investment screening and cross-border M&A in sensitive sectors: Evidence from Germany

• We study how Germany’s 2020 screening reform affected cross-border M&A. • We build a granular dataset by merging deal- and firm-level data. • Screening shifts ownership from non-EU to EU investors in sensitive sectors. • Majority-control deals drive the rise in EU acquisitions post-reform. Foreign investment screening has become a central instrument for safeguarding strategic technologies in recent years. This paper examines how such measures shape cross-border M&A patterns, using Germany’s 2020 policy reform as a case study. Applying a difference-in-differences framework to firm-level M&A data from 2016 to 2024, we find that the reform significantly increased the likelihood of investment in German firms by other EU investors in newly regulated sectors, with majority-control acquisitions emerging as a mechanism in this pattern. Our findings indicate that investment screening fosters a shift toward European ownership in sensitive sectors, as partner economies increase their investment, thereby reshaping the dynamics of cross-border capital flows.