Premium
Political Connections, Government Intervention and Acquirer Performance in Cross‐border Mergers and Acquisitions: an Empirical Analysis Based on Chinese Acquirers
Author(s) -
Yang Liuyong,
Zhang Jingjing
Publication year - 2015
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12190
Subject(s) - mergers and acquisitions , politics , economic interventionism , extant taxon , intervention (counseling) , government (linguistics) , business , monetary economics , economics , finance , political science , psychology , evolutionary biology , biology , linguistics , philosophy , psychiatry , law
The extant literature suggests that the political connections enjoyed by Chinese acquiring firms have both positive and negative effects on their performance in cross‐border mergers and acquisitions ( CBMA ). We employed firm‐level data on Chinese acquirers from 2001 to 2012, demonstrating that the effect of political connections on mergers and acquisitions performance is determined by external government intervention. Holding the level of political connections constant, the greater the degree of government intervention is, the worse the acquirer's performance in cross‐border mergers and acquisitions will be. We also demonstrated that political connections affect acquirer performance in cross‐border mergers and acquisitions through the channel of preferential access to bank financing, and the acquiring firms' high cash holdings, which are encouraged by the ease of bank financing, have a negative effect on acquirer CBMA performance. Using the Blinder‐Oaxaca decomposition, we investigated changes in the Chinese acquirers' performance following changes in the external policy environment in 2008 and the effect of political connections and other factors on this change.