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Does political corruption affect mergers and acquisitions decisions? Evidence from China

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  • Yang, Hao
  • Zhang, Qiusheng
  • Zhao, Xiaofang
  • Wang, Zhongchao

Abstract

We examine whether political corruption impedes mergers and acquisitions (M&As) decisions. Using a comprehensive sample of Chinese firms, we find that corruption has a substantial, negative relation with the firm acquisitiveness. Further evidence suggests that the impact is more pronounced when firms are non-state-owned and with poor liquidity levels, while attenuated by the anti-corruption campaign in 2012. Our results exist after a series of robustness tests. Additional tests show that acquirers in more corrupt districts create less shareholder wealth. Overall, the evidence is consistent with the hypothesis that firms manage liquidity to seek political favors, and supports the notion that corruption reduces social welfare by impeding M&A.

Suggested Citation

  • Yang, Hao & Zhang, Qiusheng & Zhao, Xiaofang & Wang, Zhongchao, 2022. "Does political corruption affect mergers and acquisitions decisions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 248-266.
    • Handle: RePEc:eee:reveco:v:78:y:2022:i:c:p:248-266
    DOI: 10.1016/j.iref.2021.12.003
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    More about this item

    Keywords

    Political corruption; Mergers and acquisitions; Rent-seeking; Liquidity; Anti-corruption campaign;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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