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External sources of political connections: Financial advisors and Chinese acquisitions
Author(s) -
Bi XiaoGang,
Wang Danni
Publication year - 2018
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1644
Subject(s) - reputation , politics , mergers and acquisitions , value (mathematics) , finance , business , stock (firearms) , economics , stock market , value creation , monetary economics , accounting , financial system , industrial organization , law , political science , mechanical engineering , paleontology , horse , machine learning , computer science , biology , engineering
Abstract This study considers the effects of an external form of political connection, namely, politically connected financial advisors, on the value creation of Chinese acquiring firms over the period 2004–2014. Using data consisting of 1,623 Chinese mergers and acquisitions (M&As) deals, we show that politically connected financial advisors create significantly higher market value for acquiring firms, after controlling for firms' own political connections and reputation. Further analysis indicates that the appointment of political advisers can improve an acquiring firm's long‐term industry‐adjusted operating performance and help acquirers reduce bid premiums. We show that private firms and stock‐pay acquisitions are more likely to appoint politically connected financial advisors in M&A transactions, whereas our findings remain unchanged after controlling for endogeneities.