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Political connection and M&A performance: Evidence from China

Author

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  • Brahma, Sanjukta
  • Zhang, Jing
  • Boateng, Agyenim
  • Nwafor, Chioma

Abstract

This paper explores the role of political connections in mergers and acquisitions (M&A) by examining the stock market performance in the short-run announcement period and the long-run post-merger period of Chinese M&A from 1998 to 2017. We further examine whether the corporate governance mechanisms and nature of ownership may determine the extent by which political connections may impact on M&A outcome. The results show that political connection has a positive and significant impact on firm performance for both privately-owned enterprises (POEs) and state-owned enterprises (SOEs). The results are more pronounced in the presence of strong corporate governance mechanisms: board independence and board gender diversity. We also find that the effect of political connection on post-merger performance is higher for POEs in comparison to SOEs. Our results are robust across alternative measures of firm performance and alternative measures of political connection.

Suggested Citation

  • Brahma, Sanjukta & Zhang, Jing & Boateng, Agyenim & Nwafor, Chioma, 2023. "Political connection and M&A performance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 372-389.
    • Handle: RePEc:eee:reveco:v:85:y:2023:i:c:p:372-389
    DOI: 10.1016/j.iref.2023.01.026
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    Keywords

    Mergers; Network theory; Grabbing hand theory; Political connections;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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