What explains the rise in national security-related investment restrictions, and why are high-tech firms disproportionately targeted? I argue that these restrictions serve two goals of the government: (1) preventing technology diffusion to foreign rivals, and (2) strengthening the government’s control over domestic firms that are not effectively regulated by traditional policy tools. I
hypothesize that the government is more likely to intervene in foreign acquisitions of domestic firms when those firms control key technologies. Additionally, firms weakly regulated by the government should be more likely to engage in investment activities that necessitate national security-based restrictions. To test these hypotheses, I compile an original dataset of 1,054 national security reviews conducted by CFIUS, the inter-agency committee responsible for screening foreign investments in the US. I identify key technology owners through network analysis of 3 million patent transactions involving Chinese and US firms. The results indicate that, compared to non-innovative US firms, those controlling key technologies are 81.34% more likely to face CFIUS intervention when seeking foreign capital. Furthermore, US firms that are weakly regulated by the US government are 17.41% more likely to engage in M&A activities that trigger CFIUS reviews, compared to firms with high regulatory exposure. Firms’ central positions in innovation networks incentivize the government to restrict their access to foreign capital, challenging the conventional belief that powerful firms are better positioned to promote investment liberalization.