Abstract：With the rapid development of China's economy, the surge in foreign exchange reserves and the ″Going out″ strategy, the number and amount of cross-border Mergers and Acquisitions（henceforth M&A）of Chinese firms have been on the rise. Existing literature mainly analyzes the changes of productivity after cross-border M&A. However, the micro decision-making base of firms is ″profit maximization″. The change of profits is an important index to evaluate the performances of cross-border M&As. Therefore, it is more realistic to study the changes of profits after cross-border M&As. Based on the theory of firm heterogeneity, this paper studies the changes of profits after cross-border M&As in depth. It also puts forward the mechanisms of markup effects after cross-border M&As from two channels: price and cost, analyzing the different markup effects of cross-border M&As when destination countries' culture is different. On this basis, this paper also studies the static and dynamic markup effects of cross-border M&As. Based on the matching data of Annual Survey of Chinese Industrial Firms (ASIF) and Zephyr's global M&A transactions, this paper studies the markup effects of China's cross-border M&As by using the PSM-DID method. The conclusions are as follows: (1) The full samples' results show that cross-border M&As have negative current markup effects and positive dynamic markup effects, which indicates that the current cross-border M&As have larger pro-competiveness effects and cost increasing effects than competition weakening effects and cost reduction effects; M&As have positive dynamic markup effects, which is large in one year, but weakened in two years. This may be due to the fact that the product innovation and process innovation behavior are imitated by competitors in the same industry and downstream industry chain. (2) The empirical test of different destination results show that the dynamic effects of M&As in developed economies are larger than that in developing economies. The markup effects in developed economies after one year are the largest. However, positive markup effects in developing economies are relatively smaller in the same period. Therefore, Chinese firms can grasp the core resources of firms in developed economies to improve the markups through cross-border M&As in developed economies. (3) Technology-R&D-type M&As and Production and processing-type M&As have positive dynamic markup effects, while Resource-development-type M&As have no significantly positive dynamic markup effects. (4) This paper also studies the heterogeneity in different types of transactions, which finds that Fully-held-type M&As have the largest positive static and dynamic markup effects. (5) Empirical tests have confirmed that cross-border M&A affect the markups though two channels: the cost channel and the price channel. This paper uses different TFP estimation methods, placebo test and quantile regression to check whether the result is robust or not. This paper provides a theoretical basis for the internal policy consistency of the ″Going out″ and ″Made in China 2025″ strategy.
