Abstract: State-owned enterprises (SOEs) are the main force of China’s overseas mergers and acquisitions (M&A), but their state-ownership status often causes serious legitimacy concerns from the host country, which restricts the implementation of the “go global” strategy. The introduction of foreign equity can weaken the “state-ownership color” of SOEs, but the existing researches rarely consider the role of foreign shareholding in SOEs’ overseas M&A. Using the overseas M&A data of SOEs from 2003 to 2020, we find that foreign shareholding could make the regulatory authorities of host country significantly less concerned about legitimacy and improve the success rate of SOEs’ overseas M&A. The effect of foreign shareholding in local SOEs on the success rate of overseas M&A is stronger than that of central SOEs. Foreign shareholding is better able to promote the success rate of overseas acquisitions by the SOEs that have more CPC members in their top management team and more centralized source countries of foreign equity. With the increasing diversity of the source countries of foreign equity, the effect of foreign shareholdings in SOEs on their success rate of overseas M&A shows an inverted U-shaped trend. This paper extends the research on foreign shareholding to include its role in SOEs’ overseas M&A activities, which enriches the existing literature on the legitimacy liability and legitimacy acquisition of SOEs during the overseas M&A process, and helps to deeply understand the impact of the “bring in” strategy on the “go global” strategy.

Key words: state-owned enterprises, overseas mergers and acquisitions, foreign equity, legitimacy perspective